CANADA FX DEBT-Canadian dollar beats G10 peers as inflation hits 18-year high

    (Adds strategist quotes and details throughout; updates prices)
    * Canadian dollar strengthens 0.4% against the greenback
    * Canada's annual inflation rate accelerates to 4.1% in
August
    * Price of U.S. oil settles 3.1% higher
    * Canadian bond yields rise across a steeper curve

    By Fergal Smith
    TORONTO, Sept 15 (Reuters) - The Canadian dollar on
Wednesday strengthened against its U.S. counterpart and all but
one of the other G10 currencies as oil prices rose and domestic
data showed inflation climbing to its highest level in 18 years.
    The loonie        was up 0.4% at 1.2642 to the greenback, or
79.10 U.S. cents, after trading in a range of 1.2631 to 1.2708.
    "It looks like broad U.S. dollar weakness although there
were positive developments (for the Canadian dollar) on the
inflation front," said Simon Harvey, senior FX market analyst
for Monex Europe and Monex Canada.
    Canada's annual inflation rate accelerated to 4.1% in
August, its highest since March 2003, boosted in part by a big
jump in gasoline prices.
    The Bank of Canada's three measures of core inflation all
posted gains, but analysts expect the central bank to stick to
the view that the factors pushing up inflation are transitory.
    The data "might have more political consequences than
necessarily consequences for the Bank of Canada," Harvey said.
    The leader of Canada's main opposition party said a surge in
inflation last month highlighted the failure of Prime Minister
Justin Trudeau's economic policies, and urged Canadians to vote
out the government in an election on Monday.
    Among G10 currencies, only the Norwegian crown        fared
better than the loonie. Norway, like Canada, is a major producer
of oil, which rose after industry data showed a
larger-than-expected drawdown in U.S. crude inventories.

    U.S. crude        prices settled 3.1% higher at $72.61 a
barrel, while Canadian government bond yields rose across a
steeper curve. The 10-year             was up 5.3 basis points
at 1.225%.
    The gap between Canada's 10-year yield and its U.S.
equivalent narrowed by 2.6 basis points to 8.1 basis points in
favor of the U.S. bond, the smallest gap since Aug. 11.

 (Reporting by Fergal Smith; editing by Jonathan Oatis)

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