CANADA FX DEBT-C$ builds on recent momentum, hits 5-1/2 month high

Thu Jun 26, 2014 10:04am EDT
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* Canadian dollar at C$1.0712 or 93.35 U.S. cents
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, June 26 (Reuters) - The Canadian dollar firmed
against the greenback on Thursday, hitting a 5-1/2-month high as
a dearth of domestic economic data this week cleared the way for
it to extend its recent run higher.
    Some weakness in the U.S. dollar also benefited the Canadian
dollar after data showed U.S. consumer spending rose less than
expected in May. 
    The loonie has only declined in one session this week so
far, continuing the gains it made last week on
stronger-than-expected Canadian inflation data, which sparked
doubts about how long the Bank of Canada will be able to stick
with its neutral stance.  
    With little on the domestic economic calendar this week,
analysts expect the currency will drift around current levels,
but they say it is unlikely to make further sustainable gains in
the longer term without a change in the central bank's stance. 
    In the shorter term, C$1.07 will be the important level to
watch to see where the Canadian dollar might go from here, said
Scott Smith, senior market analyst at Cambridge Mercantile Group
in Calgary.
    "There's the potential to see a break of C$1.07, but I think
we're getting really close to being cautious about finding a
base and starting to see a pattern here," Smith said.
    "It's getting close to that point where people that are
continuing to be extremely bullish on the loonie might be
getting a little nervous if C$1.07 continues to hold."
    The Canadian dollar was at C$1.0712 to the
greenback, or 93.35 U.S. cents, stronger than Wednesday's close
of C$1.0722, or 93.27 U.S. cents. The loonie hit a session high
of C$1.0705, its strongest level since early January, when the
currency was in the midst of a sharp sell-off.
    The Bank of Canada will release a monetary policy statement
in mid-July, but analysts don't expect to see a change in its
tone so soon.
    Because of that, "we're getting close to the strongest
levels of the loonie we're likely to see over the next few
months," Smith said.
    Next week's data, including Canadian monthly economic growth
and U.S. unemployment, could provide some direction. But the
July 1 Canada Day holiday and the July 4 holiday in the United
States could make for quiet trading.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up half a Canadian
cent to yield 1.114 percent, and the benchmark 10-year
 up 22 Canadian cents to yield 2.249 percent.

 (Editing by Peter Galloway)