* C$ finishes higher at 87.69 U.S. cents
* Inflation data, economic outlook lend support
* Greenback retreats amid growing risk appetite
* Bonds mostly flat across the curve (Adds details, quotes)
By Jennifer Kwan
TORONTO, May 20 (Reuters) - The Canadian dollar touched its highest level in seven months on Wednesday, lifted by rising oil and equity prices and as the U.S. dollar tumbled on hope the global economy may be stabilizing, which dented the greenback’s appeal as a safe haven.
The combination of factors helped to push the Canadian currency as high as C$1.1363 to the U.S. dollar, or 88.00 U.S. cents, its highest level since Oct. 14.
The broader story was U.S. dollar weakness, said J.P. Blais, vice-president, FX Products, BMO Capital Markets
“Everyone is trying to sell as many U.S. dollars as possible,” said Blais. “It’s a little bit more of a continuation of looking into riskier trades and for better yields.”
The greenback fell to its lowest level in nearly five months against major currencies on optimism the worst of the global economic downturn may be over. [FRX/]
The Canadian dollar also got a boost as domestic inflation data was seen making it less likely that the Bank of Canada will resort to unconventional measures, or quantitative easing, to stimulate the economy.
The 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:nN20487391]
“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.
The Canadian dollar CAD=D3 finished at C$1.1404, or 87.69 U.S. cents, up from C$1.1563 to the U.S. dollar, or 86.48 U.S. cents, on Tuesday.
Also supporting the currency were firmer oil prices, which settled above $62 a barrel, as U.S. data showed a steep drop in inventories ahead of the summer driving season. [ID:nSIN233823]
The Canadian currency rose in tandem with Toronto equities, which climbed 2.6 percent to touch a 2009 high as rising oil and gold prices lifted the resource-laden market.
BOND PRICES FLAT
Bond prices were mostly flat as the market largely ignored the inflation data, said Sheldon Dong, fixed income analyst at TD Waterhouse Private Investment, noting the economic reading was “benign.”
“The Canadian bond market is very disinterested today,” he said.
The benchmark two-year government bond was down 1 Canadian cent at C$100.29 to yield 1.107 percent, while the 10-year bond was unchanged at C$105.20 to yield 3.142 percent.
The 30-year bond fell 10 Canadian cents to C$118.60 to yield 3.903 percent. The U.S. 30-year yield was 4.1456.
Canadian bond performance was mixed compared with their U.S. counterparts across the curve. The 30-year bond yield was about 24 basis points below the U.S. 30-year yield, compared to about 19 basis points on Tuesday. (Reporting by Jennifer Kwan; editing by Rob Wilson)