CANADA FX DEBT-C$ hits 3-1/2 yr high as oil, equities surge

Wed Apr 20, 2011 4:57pm EDT
 
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 * C$ retreats from 3-1/2 yr high, up on day at $1.0490
 * Move beyond C$0.95 sets up test of modern day high
 * Bonds slide in response to flows toward riskier assets
 By Ka Yan Ng
 TORONTO, April 20 (Reuters) - The Canadian dollar barreled
to a 3-1/2 year high against the U.S. dollar on Wednesday,
supported by oil- and equity-market rallies.
 With additional support from renewed demand for carry
trades and building on Tuesday's above-forecast inflation in
Canada, the Canadian dollar jumped as high as C$0.9498 to the
U.S. dollar, or $1.0529, early in the day. It was its highest
level since November 2007.
 The currency was unable to get beyond that, however, and
had retreated a bit by day's end.
  "It rallied quite strongly into the early morning and then
hit a wall," said David Tulk, chief Canada macro strategist at
TD Securities.
 "I think it's a sense of fatigue and probably the order
book stacking up in such a way that a further sell-off in
dollar/Canada just wasn't in the cards."
 Jack Spitz, managing director at National Bank Financial,
said that after hitting its high on Wednesday, there are few
technical barriers in the way of the Canadian dollar rising to
its modern high of C$O.9059 to the greenback, or $1.1039
(according to Thomson Reuters dealing data), reached in
November 2007.
 "In many respects, a significant and sustainable move below
95 cents at this point in time likely opens up, from a
technical perspective, the modern day (U.S. dollar) low," Spitz
said.
 The Canadian dollar CAD=D4 closed at C$0.9533 to the U.S.
dollar, or $1.0490, up from Tuesday's North American finish of
C$0.9565 to the U.S. dollar, or $1.0455.
 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, also 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 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]
 BONDS SLIP
 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 fell 7 Canadian cents to yield
1.809 percent, while the 10-year bond CA10YT=RR lost 49
Canadian cents to yield 3.326 percent.
 (Additional reporting by Claire Sibonney; editing by Peter
Galloway)