* C$ climbs as high as C$1.1401, or 87.71 U.S. cents
* Canada annual inflation rate in April drops to 14-yr low
* Bonds flat to higher (Adds details, quotes)
By Jennifer Kwan
TORONTO, May 20 (Reuters) - Canada’s currency shot to a seven-month high on Wednesday, lifted by rising oil and equities prices as well as inflation data that was seen as making it less likely that the Bank of Canada will resort to unconventional measures, or quantitative easing, to stimulate the economy.
Canada’s annual inflation rate in April dropped to a 14-year low of 0.4 percent from 1.2 percent in March due to lower energy prices, Statistics Canada said.
The core inflation rate fell to 1.8 percent from 2.0 percent in March and was in line with expectations. [ID:nOTT001607]
“The inflation backdrop the Bank of Canada sees, confirmed by this data, is that it does not see a significant deflation risk developing in the Canadian economy so the threat of quantitative easing, is easing,” said David Watt, senior currency strategist RBC Capital Markets.
Before the data was released, traders in London said there were rumors of the numbers had been leaked and would be weaker than expectations. Similar rumors of a leak had surfaced on May 8. [ID:nN08495131]
The Canadian dollar CAD=D3 fell as low as C$1.1580, or 86.36 U.S. cents, ahead of the data, and was trading around C$1.1553, or 86.56 U.S. cents, just before its release. The currency finished at C$1.1563 to the U.S. dollar, or 86.48 U.S. cents, on Tuesday.
After the release, it begin a rally that took it as high as C$1.1401, or 87.71 U.S. cents.
Firmer oil prices, above $60 a barrel on bullish inventory and a spate of refinery accidents in the United States, also supported the currency’s rise. [ID:nSIN233823]
World stock markets rose on Wednesday on growing hopes the global economy may be stabilizing. [ID:nN20479478]
Bank of America also boosted sentiment after it raised money on Tuesday through a sale of its shares, marking a step toward meeting government requirements for capital raising following the results of a stress test on the bank. [ID:nN19416813]
Canadian bond prices were mostly flat to higher as the market largely ignored the inflation data, said Michael Gregory, senior economist BMO Capital Markets.
“The move is small enough that you can rack that one up to day-to-day noise as opposed to any sense of a trend right now,” he said.
The benchmark two-year Canadian government bond was up 2 Canadian cents at C$100.31 to yield 1.095 percent, while the 10-year bond climbed 20 Canadian cents to C$105.40 to yield 3.119 percent.
The 30-year bond rose 20 Canadian cents to C$118.90 to yield 3.887 percent. (Reporting by Jennifer Kwan; Editing by Jeffrey Hodgson)