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

Fri Jul 18, 2014 4:42pm EDT

* Canadian dollar at C$1.0736, or 93.14 U.S. cents
    * Bond prices lower across the maturity curve

 (Adds details, quotes, updates prices)
    By Leah Schnurr
    TORONTO, July 18 (Reuters) - The Canadian dollar touched a
one-week high as it rose against the greenback on Friday after
data showed Canada's annual inflation rate hit a 28-month peak
in June.
    More broadly, global markets regained their footing
following Thursday's rush to safe-haven assets. Investors,
however, were still keeping a close eye on geopolitical events
after a Malaysian airliner was downed near the Ukraine-Russia
border on Thursday and Israel stepped up a ground assault
against Gaza militants.  
    Focus in Canada was on the Friday data that showed the
annual inflation rate rose 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
in the consumer price index is temporary and that an
interest-rate cut remains just as likely as a rate rise.
 
    "Certainly the inflation print we had today didn't help the
Bank of Canada's cause," said Bipan Rai, director of foreign
exchange strategy at CIBC World Markets in Toronto. 
    "But at the same time, there's a lot of transitory effects
within today's print that could, in a round about way, benefit
what the Bank of Canada is saying."
    The Canadian dollar ended the North American
session at C$1.0736 to the greenback, or 93.14 U.S. cents,
stronger than Thursday's close of C$1.0758, or 92.95 U.S. cents.
It hit a session high of 1.0708 shortly after the inflation data
was released.
    The Canadian dollar rallied 1.6 percent through June but
lost momentum last week after a disappointing jobs report. The
currency was flat for this week. 
    After its recent runup, many analysts think the loonie is
likely to weaken from here on.
    "Investors that are looking for the loonie to weaken, a lot
of it is going to come from the U.S. dollar leg of it now," Rai
said. Bank of Canada Governor Stephen Poloz's message that a
weaker loonie would push export growth has lost a lot of the
market impact that it had late last year, he added.
    Canadian government bond prices were lower across the
maturity curve, with the two-year off 4 Canadian
cents to yield 1.080 percent. The benchmark 10-year 
was down 22 Canadian cents to yield 2.163 percent.

 (Editing by Peter Galloway)
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