CANADA FX DEBT-C$ holds on to gains in quiet trade
* Canadian dollar at C$1.0632 or 94.06 U.S. cents * Bond prices mostly lower across the maturity curve By Leah Schnurr TORONTO, July 4 (Reuters) - The Canadian dollar strengthened slightly against the greenback on Friday, holding on to recent gains in what was expected to be a quiet session with markets south of the border closed for the July Fourth holiday. The loonie touched a six-month high in the previous session as analysts viewed the robust jobs report out of the United States as ultimately benefiting Canada, even though the data initially knocked the currency lower. With fewer market participants than usual and a lack of fundamental drivers, the currency appeared content to maintain those gains after rallying since early June. Liquidity will likely evaporate further once European markets close, said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. "Beyond that, we've already seen a complete flattening out of most of the major currencies, so the Canadian dollar is a little bit stronger than it was," said Sutton. The Canadian dollar was at C$1.0632 to the greenback, or 94.06 U.S. cents, modestly stronger than Thursday's close of C$1.0639, or 93.99 U.S. cents. A number of factors combined to help the Canadian dollar run up over the last month, including higher Canadian inflation, rising oil prices and investors rushing to cover their short positions in the currency. "There has been this broad-based shift overall, so it's not like it's just been one event that has driven Canadian dollar strength, it really has been little pieces coming together from very different areas," said Sutton. While the loonie has had momentum on its side so far, many analysts expect the rally is likely reaching its peak. Analysts will also be watching for how the Bank of Canada reacts to the stronger-than-expected inflation figures when it releases its next monetary policy statement in mid-July. "Pretty quickly we're going to reach a point where the Canadian dollar has likely gone too far," said Sutton. "I would expect the Canadian dollar likely feels more comfortable around C$1.08 than it does around C$1.06." Canadian government bond prices were mostly lower across the maturity curve, though the two-year was up 0.2 Canadian cent to yield 1.134 percent. The benchmark 10-year was down 6 Canadian cents to yield 2.329 percent. (Editing by Sandra Maler)
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