CANADA FX DEBT-C$ firms with Bank of Canada on tap this week

Mon Jul 14, 2014 4:22pm EDT

* Canadian dollar at C$1.0715 or 93.33 U.S. cents
    * Bond prices higher across the maturity curve

 (Adds details, quotes, updates prices)
    By Leah Schnurr
    TORONTO, July 14 (Reuters) - The Canadian dollar firmed
against the greenback on Monday, recovering after a two-week low
hit in the previous session, but a monetary policy statement
from the Bank of Canada due later in the week was likely to keep
the currency confined to a trading range.
    While the central bank is widely expected to hold rates at 1
percent, where they have been since 2010, the market will be
parsing the bank's statement for its reaction to recent
stronger-than-expected inflation.
    Most analysts expect that the Bank of Canada will stick to
the neutral tone it has held since October, especially after
Friday's disappointing labor market report. 
    "The focus really will be on ... how the Bank of Canada
tries to position itself around its policy stance," said Don
Mikolich, executive director of foreign exchange sales at CIBC
World Markets in Toronto.
    "They'll certainly try to point to the weakness on the
employment side as reason to keep rates low for longer, but
whether they can maintain a neutral stance in monetary policy in
light of inflation above 2 percent will be the interesting
comments to follow."
    The Canadian dollar ended the North American
session at C$1.0715 to the greenback, or 93.33 U.S. cents,
stronger than Friday's close of C$1.0734, or 93.16 U.S. cents.
    The loonie gained 1.6 percent through June in a rally fueled
by the robust inflation reading, higher oil prices and short
covering. But the currency's momentum stalled last week as it
was hit hard by the report that showed the economy lost jobs in
June.
    In the aftermath of that report, Wednesday's statement from
the Bank of Canada could prove to be a fairly pivotal turning
point for the Canadian dollar, said Scott Smith, senior market
analyst at Cambridge Mercantile Group in Calgary.
    "I think we'll get up into that C$1.0815 level if we do get
a reiteration of their neutral-to-dovish message," said Smith.
    In a relatively light week for domestic data, the inflation
report due at the end of the week will also be a focal point.
Inflation is forecast to hold at a 2.3 percent annualized rate
in June. 
    South of the border, investors will watching congressional
testimony from U.S. Federal Reserve Chair Janet Yellen on
Tuesday and Wednesday.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 2.2 Canadian
cents to yield 1.096 percent and the benchmark 10-year
 up 6 Canadian cents to yield 2.210 percent.

 (Editing by Jonathan Oatis)
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