CANADA FX DEBT-C$ closes lower after hitting 6-month high
* C$ hits overnight high of 87.14 U.S. cents
* Drop in stock markets and oil prices spark retreat
* Bond prices rebound after recent skid
By Frank Pingue
TORONTO, May 11 (Reuters) - The Canadian currency's latest rally stalled on Monday as the appetite for risk that had sent it to a six-month high overnight evaporated as oil and equities prices, key drivers of the move, fell.
Since hitting a four-year low in early March, the Canadian dollar has rallied as much as 14 percent, driven by a combination of upbeat economic data, a rise in equities and oil prices, and improved sentiment about the global economy.
But the currency stepped back on Monday as the price of oil, a key Canadian export, fell, as did equities, which boosted the appeal of the safe-haven U.S. dollar.
"It's come a long way in a short period of time and technical indicators are overdone -- they have been for a few days now at least -- so I wouldn't be surprised to see a little bit more retracement," said John Curran, senior vice president at CanadianForex, a commercial foreign exchange dealing firm.
"Everyone is looking at the equities and how the markets are paring back on positions that have turned out favorable for them in the last few weeks."
Canada's currency rallied overnight to C$1.1476 to the U.S. dollar, or 87.14 U.S. cents, its highest level since Nov. 5, in a move pegged to follow-through from Friday, when North American jobs data came in stronger than expected and boosted risk appetite.
But its momentum stalled in the North American session and it retreated to close at C$1.1658 to the U.S. dollar, or 85.78 U.S. cents, down from C$1.1497 to the U.S. dollar, or 86.98 U.S. cents, at Friday's close.
Toronto's key stock market index ended down 1.4 percent while the Dow Jones industrial average slipped 1.8 percent.
The next economic indicators that could influence the Canadian dollar are Tuesday's international merchandise trade report for March and Friday's manufacturing survey.
BOND PRICES HIGHER
Canadian bond prices snapped a recent skid and closed higher across the curve as the weakness in equities boosted the appeal of more secure government debt.
"It's just a bounce-back from last Friday ... as stocks seem to be losing a bit of momentum," said Sheldon Dong, fixed income analyst at TD Waterhouse Private Investment.
Dong said Canadian bonds rallied alongside the bigger U.S. Treasury market, which got a boost as the U.S. Federal Reserve bought $3.5 billion worth of Treasuries as part of its plan to keep borrowing costs low. [ID:nN11527919]
The benchmark two-year Canadian government bond ended up 8 Canadian cents at C$100.33 to yield 1.089 percent, while the 10-year bond rallied 50 Canadian cents to C$105.50 to yield 3.109 percent.
The 30-year bond was rose 80 Canadian cents to C$118.90 to yield 3.888 percent.
Canadian bonds underperformed their U.S. counterparts across most of the curve. The 30-year bond yield was about 29 basis points below the U.S. 30-year yield, compared with around 34 basis points below on Friday. (Editing by Peter Galloway)
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