CANADA FX DEBT-C$ touches 6-month high with momentum intact

Wed Jul 2, 2014 9:53am EDT

* Canadian dollar at C$1.0649 or 93.91 U.S. cents
    * Bond prices lower across the maturity curve

    By Leah Schnurr
    TORONTO, July 2 (Reuters) - The Canadian dollar was higher
against the greenback on Wednesday and had touched a six-month
high in early trading that was undercut by data that showed
surprisingly strong hiring by companies south of the border.
    The loonie has been on an upward climb since early June,
gaining 2.6 percent, a rise that has been fueled in part by
higher than expected inflation in Canada and its implications
for central bank policy.
    Since that inflation report nearly two weeks ago, the
Canadian dollar has had momentum on its side as it has broken
through key technical levels.
    "We have a combination of things that have worked in the
Canadian dollar's favor, and in the near term it's a difficult
trend to fight," said Camilla Sutton, chief currency strategist
at Scotiabank in Toronto. 
    "However, it's also difficult to expect that this will
sustain itself at these levels because I think it does begin to
pose broader questions for both the Bank of Canada and the
general economic backdrop."
    The Canadian dollar was at C$1.0649 to the
greenback, or 93.91 U.S. cents, stronger than Monday's official
Bank of Canada close of C$1.0670, or 93.72 U.S. cents. Financial
markets in Canada were closed on Tuesday for the Canada Day
holiday.
    The loonie touched a high of C$1.0627 in early morning
trading, its highest level since early January, before the
robust U.S. jobs data cut the gain.
     U.S. companies hired 281,000 workers in June, marking the
biggest monthly increase since November 2012. The U.S. dollar
rose 0.2 percent against a basket of currencies, to the
detriment of the loonie. 
    Whether the Canadian dollar can break through C$1.06 will be
the next level traders will be watching, but any move into the
C$1.05s and beyond is likely to be temporary, Sutton said.
    By the time the Bank of Canada's next policy meeting comes
up on July 16, "we'll likely be off the highs in the Canadian
dollar," she said.
    Canadian government bond prices were lower across the
maturity curve, with the two-year off 5 Canadian
cents to yield 1.127 percent and the benchmark 10-year
 down 45 Canadian cents to yield 2.287 percent.

 (Editing by Peter Galloway)
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