* Canadian dollar at C$1.0744 or 93.08 U.S. cents
* Bond prices higher across the maturity curve
(Adds details on market activity, quotes, updates prices)
By Leah Schnurr
TORONTO, June 24 (Reuters) - The Canadian dollar weakened
modestly against the greenback on Tuesday, retreating from a
5-1/2 month high as a lack of domestic economic data this week
left investors without reason push it higher.
It was only the second session in the last six days in which
the loonie has declined after it rallied last week after data
showed a surprisingly strong rise in Canadian inflation and
robust retail sales.
The increase in May's annual inflation rate could put
pressure on the Bank of Canada to stop fretting about the low
inflation environment in Canada and alter the neutral policy
stance it has held since last October. But a quick shift by the
bank is not expected.
Analysts say any further significant gains by the Canadian
dollar could be difficult without a change in the central bank's
tone.
"Inflation pushing above 2 percent does make it hard for the
Bank of Canada to be in a truly neutral stance, (which means)
rate cuts as equal as rate hikes," said Don Mikolich, executive
director of foreign exchange sales at CIBC World Markets in
Toronto.
While the market sees the possibility of a rate cut as
increasingly unlikely, the central bank will still be cautious
not to sound too aggressive, Mikolich said.
"I don't think the bank is keen - especially now with the
Canadian dollar strengthening - to switch to a more hawkish
stance, which would see the Canadian dollar strengthen and
defeat the gains on the export sector that they're hoping to see
continue," he said.
The Canadian dollar ended the North American
session at C$1.0744 to the greenback, or 93.08 U.S. cents,
weaker than Monday's close of C$1.0726, or 93.23 U.S. cents. The
currency hit a high of C$1.0716 overnight, its highest level
since the start of the year.
The C$1.0710 level is likely to act as a floor for the U.S.
dollar-Canadian dollar pairing, unless there is a change in the
Bank of Canada's message or June's job figures come in
surprisingly hot, said Ken Wills, currency strategist and broker
at CanadianForex in Toronto.
"It looks like we've established a new range (from) C$1.0710
up to C$1.0850, I would anticipate between now and July 16 when
the Bank of Canada comes out," he said in reference to the
central bank's next policy statement.
Canadian government bond prices were higher across the
maturity curve, with the two-year up 4-1/2 Canadian
cents to yield 1.121 percent and the benchmark 10-year
up 43-1/2 Canadian cents to yield 2.287 percent.
(Editing by Peter Galloway)