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The Canadian dollar climbed to its highest level in more than two months against its broadly weaker U.S. counterpart on Wednesday, as oil prices rose and the Federal Reserve said it would be patient in lifting borrowing costs further this year.

The U.S. dollar fell against a basket of major currencies after the Fed held interest rates steady, as expected, and struck a cautious tone in its outlook for the economy and future interest rate increases.

“The Canadian dollar is flying high on the basis of looser global monetary conditions,” said Karl Schamotta, director of global markets strategy at Cambridge Global Payments. “We are seeing a sustained risk rally around the world on the basis of a more dovish Fed than had been previously expected.”

Global stocks rose about 1.2 per cent, building on gains since the start of the year.

Canada is running a current account deficit and exports many commodities, including oil, so its economy could benefit from a pickup in the global flow of capital.

The price of oil was boosted by U.S. government data that showed signs of tightening supply, as investors remained concerned about supply disruptions following U.S. sanctions on Venezuela’s oil industry. U.S. crude oil futures settled 1.7 per cent higher at $54.23 a barrel.

At 4:07 p.m., the Canadian dollar was trading 0.9 per cent higher at 1.3148 to the greenback, or 76.06 U.S. cents. The currency touched its strongest level intraday since Nov. 8 at 1.3119.

The loonie has climbed 3.8 per cent for the month so far, the best performance of G10 currencies. It declined 7.8 per cent in 2018.

Gains for the loonie came as the United States and China opened a pivotal round of high-level talks aimed at digging out from their months-long trade war.

Canadian government bond prices were higher across much of a steeper yield curve in sympathy with U.S. Treasuries. The two-year rose 5.5 cents to yield 1.823 per cent and the 10-year gained 15 cents to yield 1.923 per cent.

The gap between Canada’s two-year yield and its U.S. equivalent narrowed by 2 basis points to a spread of 69.5 basis points in favour of the U.S. bond.

Canada’s gross domestic product data for November is due on Thursday. Analysts expect the data to reveal a contraction in the economy.

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