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CANADA FX DEBT-Canadian dollar rallies as BoC stokes rate hike bets

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(Adds strategist quote and details throughout, updates prices) * Canadian dollar strengthens 0.5% against the greenback * BoC signals rates could rise in the middle quarters of 2022 * Price of U.S. oil falls 2.5% * Canadian 2-year yield jumps 23 basis points By Fergal Smith TORONTO, Oct 27 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday, as the Bank of Canada signaled it could hike interest rates earlier than previously thought and became the first central bank from a G7 country to exit quantitative easing. The Bank of Canada bringing forward the timing that it expects the output gap to close is the reason that "you are seeing the loonie grind higher," said Simon Harvey, FX market analyst, Monex Europe and Monex Canada. The BoC maintained guidance to leave rates on hold until economic slack is absorbed, but it now expects that to happen sometime in the middle quarters of 2022 rather than in the second half of 2022. It also ended its bond-buying program, citing Canada's robust economic growth, high COVID-19 vaccination rates, and strong employment gains. Money markets expect the central bank to begin a series of hikes in March. Before the announcement, lift-off was seen in April. Meanwhile, analysts say that the Bank of England is on track to end quantitative easing some time in December. The Federal Reserve could begin tapering bond purchase next month. The Canadian dollar was last trading 0.5% higher at 1.2322 to the greenback, or 81.16 U.S. cents, after touching its weakest intraday level since Oct. 14 at 1.2428 before the rate announcement. Gains for the loonie came even as U.S. crude oil stockpiles rose more than expected, pressuring the price of oil, one of Canada's major exports. U.S. crude prices were down 2.5% at $82.57 a barrel. Canadian government bond yields were mixed across a flatter curve. The 2-year touched its highest since March 2020 at 1.147%, before dipping to 1.101%, up about 23 basis points on the day. The 10-year was down 2.4 basis points at 1.604%, tracking the move in U.S. Treasuries. (Reporting by Fergal Smith; Editing by Emelia Sithole-Matarise and Alistair Bell)

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