CANADA FX DEBT-Inflation data momentum drives loonie to near 6-month high
* Canadian dollar at C$1.0661 or 93.80 U.S. cents * Bond prices mostly lower across the maturity curve (Recasts with move higher, adds details, quotes, updates prices) By Leah Schnurr TORONTO, June 27 (Reuters) - The Canadian dollar continued to ride a wave of momentum on Friday, strengthening to a near six-month high against the greenback as a recent rise in inflation has bolstered the case for buying the loonie. The move brings the Canadian dollar back to its 2014 highs, last seen in early January before a sharp selloff pulled the currency to a 4-1/2 year low. What started as a rally last week on surprisingly strong domestic inflation data has gained traction this week as the loonie has broken through some key technical levels and has benefited from U.S. dollar weakness as well as short-covering. "What you're seeing today obviously is a continuation of this market that is still turning more and more bullish on the Canadian dollar in light of the recent inflation figures," said Brad Schruder, director of foreign exchange sales at BMO Capital Markets in Toronto. The rise in annual inflation to 2.3 percent in May topped the Bank of Canada's target, causing the market to reassess central bank Governor Stephen Poloz's concern about a weak inflation environment. "There was a widely held, and little-contradicted, theory that the Canadian economy was about to experience some serious deflation and it was going to be problematic for the Bank of Canada. That theory is really beginning to fall apart," prompting investors to adjust their positions, Schruder said. Analysts do not expect the Bank of Canada to alter its neutral stance as early as its next policy announcement on July 16, but markets will watch for any mention by the bank of what impact the stronger Canadian dollar is having. "I suspect at these levels, Governor Poloz will highlight the impact of the strong Canadian dollar on both the export sector, as well as inflation through lower import costs, so that will open the door as an offset to the recent inflation prints we've had," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. "If we go into July 16 and have a Canadian dollar still sitting below C$1.07, I suspect he will be very cautious." The Canadian dollar ended the North American session at C$1.0661 to the greenback, or 93.80 U.S. cents, stronger than Thursday's close of C$1.0693, or 93.52 U.S. cents, and near the intraday high of C$1.0660. With the loonie's momentum building, rising to the C$1.06 level "is just a matter of time", Schruder said. The loonie gained in four out of five sessions this week, rising 0.9 percent against its U.S. counterpart. With one trading session to go in June, the loonie is up 1.7 percent, on track for its strongest month since September. Canadian government bond prices were mostly lower across the maturity curve, with the two-year off 1.8 Canadian cent to yield 1.118 percent, and the benchmark 10-year down 6 Canadian cents to yield 2.250 percent. (Editing by Peter Galloway)
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