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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]
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)