CANADA FX DEBT-C$ firms modestly as recent momentum holds

Fri Feb 14, 2014 9:17am EST

* Canadian dollar at C$1.0963 or 91.22 U.S. cents
    * Loonie touches highest level in nearly 4 weeks
    * Bond prices mixed across the maturity curve

    By Leah Schnurr
    TORONTO, Feb 14 (Reuters) - The Canadian dollar strengthened
slightly against the greenback on Friday, adding to a recent
string of modest gains that has seen the loonie bounce back from
last month's 4-1/2-year lows.
    The loonie had a firmer tone after data overseas showed
growth in the euro zone economy picked up more than analysts
were expecting. 
    But at home, manufacturing sales unexpectedly dropped in
December, helping the Canadian dollar to cut some of its early
morning gains. 
    The Canadian dollar was at C$1.0963 to the
greenback, or 91.22 U.S. cents, stronger than Thursday's close
of C$1.0977, or 91.10 U.S. cents. The currency earlier hit a
session high of C$1.0940, its highest level in nearly 4 weeks.
    After a sharp sell-off in January, the Canadian dollar has
managed to regain about 1.5 percent since the start of February
as investors now view the speed of the decline in the currency
at the start of the year to have been overdone.
    "We went a long way in a very short period of time, so a bit
of retracement here wouldn't be all that unexpected," said
Benjamin Reitzes, senior economist at BMO Capital Markets in
Toronto.
    Still, the fundamentals that drove the loonie lower remain
in place, particularly a Bank of Canada that is concerned about
the weak inflation environment and is likely to keep rates low
for some time. Most analysts expect there is more downside in
store for the loonie.
    "I would be surprised if it went that much further, there's
probably a bit of room if we get some solid Canadian (economic)
numbers," said Reitzes.
    "We still think the medium-term trend over the next few
months is a weaker Canadian dollar." 
    Canadian government bond prices were mixed across the
maturity curve, with the two-year up 1 Canadian cent
to yield 1.014 percent and the benchmark 10-year 
down 4 Canadian cents to yield 2.466 percent.
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