February 17, 2011 / 9:53 PM / in 9 years

CANADA FX DEBT-C$ ends flat after thrust to 3-year high

 * C$ closes exactly flat at C$0.9849 vs US$ $1.0153
 * C$ has few technical barriers for further strength
 * Bonds track US Treasuries higher
 (Updates to close)
 By Claire Sibonney
 TORONTO, Feb 17 (Reuters) - The Canadian dollar shot to its
highest level against the greenback in nearly three years on
Thursday, buoyed by optimism over U.S. economic growth, an
oil-price rally and a positive outlook for global equities.
 After pushing through key resistance at C$0.9832, the
previous 2011 high, it jumped as far as C$0.9816 to the U.S.
dollar, or $1.0187, in early trade, its loftiest level since
March 2008.
  After that, however, it retreated to within the tight
range of C$0.9832-C$1.0060 that it has been confined to for
most of the year as investors held their bets ahead of crucial
inflation data on Friday.
 Market players said they now see few technical barriers to
the currency advancing out of that range again.
 Jeremy Stretch, head of currency strategy at CIBC World
Markets in London, said the Canadian dollar's break of its
year-to-date best opened up the way towards C$0.9800 and highs
last seen in 2008.
 "As far as our CPI expectations are concerned, that
probably will preclude a significant slide lower in dollar/CAD
from here ... Unless we get a CPI surprise well beyond what
we're anticipating, I think ($0.98) should remain untested, at
least this side of the weekend," he said.
 He noted there was reasonable buying interest in U.S.
dollars in the C$0.9820-C$0.9840 area.
 Analysts polled by Reuters are expecting the annual rate
for headline inflation to ease in January, confirming that
price pressures are not an immediate concern for the Bank of
Canada. [ID:nN11296499]
 "Tomorrow's CPI figures are going to be critical. So far
the Bank of Canada has been vindicated in its cautious monetary
policy stance, based on the trends in CPI." said Paresh
Upadhyaya, head of Americas G10 FX strategy at Bank of America
Merrill Lynch in New York.
 "So tomorrow, if we were to see an upside surprise in
headline and core CPI, the markets may start to get excited
about a rate hike sooner than later."
 A more hawkish Bank of Canada, he said, could pave the way
for the Canadian dollar to test modern-day highs set in late
 The central bank stressed in its January monetary report
that the high-flying Canadian dollar was hampering recovery in
the export sector, the backbone of the Canadian economy.
 The Canadian dollar CAD=D4 ended on Thursday at the exact
same level as Wednesday's North American session close of
C$0.9849 to the U.S. dollar, or $1.0153.
 Canadian bond prices were higher across the curve, driven
by a rise in U.S. Treasuries as mounting tensions in the Middle
East boosted a safe-haven bid and U.S. jobless claims data
pointed to benign wage pressures for the coming year. [US/]
 The two-year Canadian government bond CA2YT=RR was up 7
Canadian cents to yield 1.908 percent, while the 10-year bond
CA10YT=RR advanced 20 Canadian cents to yield 3.478 percent.
 (Reporting by Claire Sibonney; editing by Peter Galloway)

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