CANADA FX DEBT-Loonie turns lower after weak data

Mon Jul 7, 2014 4:46pm EDT

* Canadian dollar at C$1.0677 or 93.66 U.S. cents
    * Bond prices higher across maturity curve

 (Recasts with Canadian dollar turning lower, adds details on
market activity, quotes, updates prices)
    By Leah Schnurr
    TORONTO, July 7 (Reuters) - The Canadian dollar weakened
against the greenback on Monday as disappointing domestic
economic reports pulled the loonie further from the six-month
high it hit last week.
    Data that showed a 13.8 percent surge in building permits in
May had put the loonie on a strong footing in the early morning,
but the currency gave up those gains after a report showed the
pace of purchasing activity shrank for a second month in a row
in June.  
    The decline was sharpened by a survey from the Bank of
Canada that showed overall business sentiment was little changed
in the second quarter. 
    The survey also showed that fewer firms expected to have
difficulty meeting a surge in demand in the second quarter than
did in the first quarter, a sign that pressures on production
capacity have lessened.
    Analysts said the survey could allow the Bank of Canada to
stick to its neutral stance when it releases its monetary policy
statement next week. 
    A surprisingly strong inflation reading last month has been
a major factor in the loonie's recent rally and some had
speculated that the reading might make it more difficult for the
central bank to justify its neutral stance.
    "We were of the mind the Bank of Canada would still try to
find a way to be dovish and we were wondering how creative they
would have to be, but this business outlook survey does make it
marginally easier for them to communicate that theme to the
market," said David Tulk, chief Canada macro strategist at TD
Securities in Toronto.
    "So maybe that's starting to trickle into the view of the
market insofar as the currency is moving."
    The Canadian dollar ended the North American
session at C$1.0677 to the greenback, or 93.66 U.S. cents,
weaker than Friday's close of C$1.0657, or 93.84 U.S. cents.
    Still, the Canadian dollar is up 2.5 percent since early
June after a rally fueled by the firmer inflation data, stronger
oil prices and a more robust outlook for global growth.
    Investors rushing to cover their Canadian dollar short
positions accentuated the upward momentum. 
    Data from the Commodity Futures Trading Commission's weekly
commitments of traders report showed the net Canadian dollar
position has shifted to positive for the first time since
February 2013, highlighting the favorable turn in sentiment
toward the currency, Scotiabank wrote in a note.
    "We started to approach some technical levels in the C$1.064
area," Tulk said. "You overlay the technicals with some of the
fatigue we saw in some of the positioning data as well, it seems
like we put in a bit of a floor for the U.S. dollar-Canadian
dollar in the short term." 
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 1.3 Canadian
cents to yield 1.131 percent. The benchmark 10-year 
was up 22 Canadian cents to yield 2.307 percent.

 (Editing by Peter Galloway)
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