TORONTO, July 29 (Reuters) - The Canadian dollar strengthened to a nine-day high against its U.S. counterpart on Wednesday as oil prices jumped and the Federal Reserve left interest rates on hold.
The loonie was trading 0.6% higher at 1.4024 per U.S. dollar, or 71.31 U.S. cents, marking its strongest level since July 20.
The Fed left its benchmark interest rate in the 3.50%-3.75% range, a choice that may intensify questions about how U.S. central bank chief Kevin Warsh will deliver on his commitment to bring inflation back down to the 2% target.
"American monetary policymakers opted for a wait-and-see approach instead of shock-and-awe," Royce Mendes, head of macro strategy at Desjardins, said in a note.
Investors had priced in a roughly one-in-three chance of a hike. The U.S. dollar (.DXY), opens new tab weakened against a basket of major currencies after the policy announcement.
The price of oil , one of Canada's major exports, settled 6.6% higher at $84.46 a barrel as major airstrikes resumed in the Middle East and dashed hopes for an imminent end to the U.S.-Israeli war with Iran.
Canada is a major producer of oil, much of which goes to the United States. Prime Minister Mark Carney played down the idea of curbing supplies to the U.S. to gain leverage in a trade war, saying that would harm Canada's reputation.
The Bank of Canada also left interest rates on hold this month. Ahead of the decision, governors were split over the sustainability of the economic recovery, minutes of the meeting showed.
Canadian GDP data, due on Friday, is expected to show the economy expanding by 0.2% in May from April.
Canadian bond yields were mixed across a steeper curve, tracking moves in U.S. Treasuries.
The 2-year eased 1 basis point to 2.840%, while the 10-year was up 4 basis points at 3.571%.
Reporting by Fergal Smith; Editing by Chizu Nomiyama
