CANADA FX DEBT-C$ hits wall after surging to 3-1/2 yr high

Wed Apr 20, 2011 2:22pm EDT
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 * C$ retreats from 3-1/2 yr high, up on day at $1.0472
 * Bonds slide in response to flows toward riskier assets
 By Ka Yan Ng
 TORONTO, April 20 (Reuters) - The Canadian dollar backed
off a bit on Wednesday after hitting its highest level against
the U.S. dollar since November 2007, but support from oil- and
equity-market rallies helped it hold moderate gains.
 Boosted by renewed demand for carry trades, higher
commodity prices and above-forecast inflation in Canada, the
Canadian dollar CAD=D4 had risen as high as C$0.9498 to the
U.S. dollar, or $1.0529, early in the day.
 "It rallied quite strongly into the early morning and then
hit a wall," said David Tulk, chief Canada macro strategist at
TD Securities.
 "I think it's a sense of fatigue and probably the order
book stacking up in such a way that a further sell-off in
dollar/Canada just wasn't in the cards."
 At 1:55 p.m. (1755 GMT), the Canadian dollar was at
C$0.9549 to the U.S. dollar, or $1.0472, up from Tuesday's
North American finish of C$0.9565 to the U.S. dollar, or
 The Canadian dollar's gains on Wednesday paled against
those made by sister commodity-linked currency, the Australian
dollar, which hit a fresh post-float high of $1.0692 in the
chase for yield. [FRX/] AUD=D4
 Adam Cole, global head of FX strategy at RBC Capital
Markets, said there was little left in the way of U.S. dollar
support that would impede a return of the Canadian dollar to
its modern-day high of $1.10.
 The Canadian dollar's move built on gains made in the
previous session after data showed Canada's annual inflation
rate last month jumped to its highest level since September
2008, putting more pressure on the Bank of Canada to raise
interest rates. [ID:nN19274146]
 Following the report, a Reuters poll showed a growing
number of primary dealers believe the central bank will resume
raising interest rates in July. [CA/POLL]
 Canadian bond prices were lower across the curve as the
world stock rally drew investors away from the relative safety
of government debt.
 "You're looking at a very heavy risk-on kind of day. Canada
appears to be in the ballpark of the U.S. There's no major
outperformance or underperformance," TD's Tulk said.
 Canada's C$3.5 billion sale of five-year bonds due in
September 2016 met with strong demand, producing a bid-to-cover
ratio of 2.327. The ratio, a measure of investor demand, was
the highest for a five-year auction since November.
 The two-year bond CA2YT=RR was down 4 Canadian cents to
yield 1.793 percent, while the 10-year bond CA10YT=RR lost 30
Canadian cents to yield 3.302 percent.
 (Additional reporting by Claire Sibonney; editing by Peter