* Canadian dollar at C$1.0687 or 93.57 U.S. cents * Bond prices higher across the maturity curve By Leah Schnurr TORONTO, June 27 (Reuters) - The Canadian dollar pulled back from a 5-1/2-month high hit overnight and was little changed against the greenback on Friday, with only minor movement expected through the day as the market looked set to take a breather.
After a quiet week for domestic economic data, investors took in figures on Friday that showed Canadian industrial product prices fell unexpectedly last month, largely due to cheaper energy and a stronger currency. The loonie had little reaction to the report.
What started as a rally last week on surprisingly strong domestic inflation data has gained traction this week as the loonie has broken through some key technical levels and has benefited from U.S. dollar weakness.
"Up until earlier this week, it was a very fundamental move and then the last couple days has really been a broader U.S. dollar move, combined with probably some late short-covering," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto.
"Right now, we're sitting with a much stronger Canadian dollar than we started the week ... and the market is just digesting all of that." The Canadian dollar was on track to have risen in four out of five sessions this week and was up 0.7 percent on the week against its U.S. counterpart.
The Canadian dollar was at C$1.0687 to the greenback, or 93.57 U.S. cents, slightly stronger than Thursday's close of C$1.0693, or 93.52 U.S. cents.
The loonie touched a high of C$1.0677 overnight, its highest level since early January. That was likely to be the high for the session, Sutton said.
Last week's strong inflation reading has put focus on the Bank of Canada's next policy announcement on July 16 because the bank's governor, Stephen Poloz, has repeatedly flagged concerns about a weak inflation environment.
While analysts say the central bank is unlikely to shift away from its neutral stance quickly, markets will watch for any mention of what impact the stronger Canadian dollar is having.
"I suspect at these levels, Governor Poloz will highlight the impact of the strong Canadian dollar on both the export sector, as well as inflation through lower import costs, so that will open the door as an offset to the recent inflation prints we've had," Sutton said.
"If we go into July 16 and have a Canadian dollar still sitting below C$1.07, I suspect he will be very cautious." Canadian government bond prices were higher across the maturity curve, with the two-year up half a Canadian cent to yield 1.107 percent, and the benchmark 10-year up 13 Canadian cents to yield 2.229 percent.
(Editing by Peter Galloway)