CANADA FX DEBT-C$ hits 3-month high as hot inflation supports rate hike bets

(Adds strategist quote and details throughout, updates prices) * Canadian dollar strengthens 0.4% against the greenback * Touches strongest level since July 6 at 1.2308 * Canada's annual inflation rate climbed to 4.4% in September * Price of U.S. oil settles 1.1% higher By Fergal Smith TORONTO, Oct 20 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday, as oil prices rose and domestic data showing an 18-year high for inflation supported expectations for the Bank of Canada to raise interest rates before the Federal Reserve. Canada's annual inflation rate climbed to 4.4% in September, driven by high gas prices, soaring housing costs and rising food prices, data showed, putting the focus on the Bank of Canada ahead of a rate decision next week. "Canadian inflation was stronger. That helps the whole argument about when will interest rates go up and who will be first," said Amo Sahota, director at Klarity FX in San Francisco. Money markets expect the first interest rate hike from the BoC to come in April, months ahead of expected liftoff from the Fed and earlier than guidance from Canada's central bank. The Canadian dollar was trading 0.4% higher at 1.2316 to the greenback, or 81.20 U.S. cents, after touching its strongest level since July 6 at 1.2308. The price of oil, one of Canada's major exports, rose after U.S. crude inventories at the nation's largest storage site hit their lowest level in three years and nationwide fuel stocks fell sharply, a signal of rising demand. U.S. crude prices settled 1.1% higher at $83.87 a barrel. Separate data showed that Canadian home prices barely rose in September from August after a string of gains as a recent slowdown in housing sales weighed. Canadian government bond yields were mixed across a steeper curve, mirroring the move in U.S. Treasuries. The 10-year rose half a basis point to 1.635% but was holding below last week's peak of 1.683%, which was its highest since January last year. (Reporting by Fergal Smith; Editing by Sandra Maler and Peter Cooney)