CANADA FX DEBT-Canadian dollar hits one-week high after inflation data

Fri Jul 18, 2014 9:28am EDT

* Canadian dollar at C$1.0732, or 93.18 U.S. cents
    * Bond prices lower across the maturity curve

    By Leah Schnurr
    TORONTO, July 18 (Reuters) - The Canadian dollar firmed to a
one-week high against the greenback on Friday after data showed
Canada's annual inflation rate rose to a 28-month high in June.
    The strength in the loonie bucked the more cautious trend in
global markets after a Malaysian airliner was downed near the
Ukraine-Russia border and Israel stepped up a ground assault
against Gaza militants.  
    But the focus in Canada was on a rise in the annual
inflation rate to 2.4 percent last month, which exceeded
expectations, as well as the Bank of Canada's 2 percent target.
 
    The central bank, which has long been concerned about the
risks of low inflation, said earlier this week the recent surge
was temporary. 
    "The key take-away here is that the Bank of Canada spent a
lot of time this week to reinforce the transitory nature of
inflation to downplay the recent strength in inflation and here
we are with inflation a little bit stronger than expected," said
Mazen Issa, senior Canada macro strategist at TD Securities in
Toronto.
    "This is going to be a key theme as we move forward and
whether or not the Bank of Canada's rhetoric is vindicated
within the actual data."
    The Canadian dollar was at C$1.0732 to the
greenback, or 93.18 U.S. cents, above Thursday's close of
C$1.0758, or 92.95 U.S. cents. It hit a session high of 1.0708
shortly after the data was released.
    Investors also took in a separate report that showed
wholesale sales jumped far more than expected in May.
 
    The Canadian dollar rallied 1.6 percent through June but
lost momentum last week after a disappointing jobs report. The
currency is nearly flat for the week, up just 0.02 percent. 
    Canadian government bond prices were lower across the
maturity curve, with the two-year off 3-1/2 Canadian
cents to yield 1.077 percent. The benchmark 10-year 
was down 16 Canadian cents to yield 2.156 percent.

 (Reporting by Leah Schnurr; Editing by Paul Simao)
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