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

Thu Jun 26, 2014 4:39pm EDT

* Canadian dollar at C$1.0693 or 93.52 U.S. cents
    * Bond prices higher across the maturity curve

 (Adds details, quotes and updates prices)
    By Leah Schnurr
    TORONTO, June 26 (Reuters) - The Canadian dollar
strengthened to a 5-1/2-month high against the greenback on
Thursday, breaking through the C$1.07 level as a dearth of
domestic economic data this week cleared the way for it to
extend its recent run higher.
    A soft U.S. dollar also benefited the Canadian dollar after
data showed U.S. consumer spending rose less than expected in
May. That followed figures on Wednesday that showed a sharp
contraction in U.S. economic growth for the first quarter.
 
    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 policy stance.  
    The combination of U.S. dollar weakness, momentum on the
loonie's side and investors covering their short positions all
helped push the Canadian dollar higher, said Greg Moore, senior
currency strategist at Royal Bank of Canada in Toronto.
    With little on the horizon to change those factors, "that
suggests to me there might be a little bit more to go" in the
loonie's rise, Moore said.
    Analysts expect the currency could grind higher with a light
economic calendar this week and next, but they say it is
unlikely to make further sustainable gains in the longer term
without a change in the central bank's stance. 
    The Canadian dollar ended the North American
session at C$1.0693 to the greenback, or 93.52 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$1.0684, its strongest
level since early January, when the currency was in the midst of
a sharp selloff.
    While investors will see Canadian monthly economic growth
and U.S. unemployment figures next week, trading could be quiet
due to market closures for the July 1 Canada Day holiday and the
July 4 holiday in the United States.
    The C$1.0640 level will be the next area to watch, said
Moore, though he added that from a fundamental perspective, the
Canadian dollar would need to see something significant, such as
a shift in tone from the Bank of Canada, to get through those
levels.
    The Bank of Canada will release a monetary policy statement
in mid-July, but analysts don't expect it to show a big change
in the bank's position.
    Because of that, "we're getting close to the strongest
levels of the loonie we're likely to see over the next few
months," said Scott Smith, senior market analyst at Cambridge
Mercantile Group in Calgary.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 1-1/2 Canadian
cents to yield 1.109 percent, and the benchmark 10-year
 up 30 Canadian cents to yield 2.240 percent.

 (Editing by Peter Galloway)
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