CANADA FX DEBT-Canada dollar dips as U.S. government shutdown starts
* C$ at C$1.0312 vs US$, or 96.97 U.S. cents * Investors wary as U.S. federal government in partial shutdown * Bond prices lower across the curve By Leah Schnurr TORONTO, Oct 1 (Reuters) - The Canadian dollar weakened modestly against the greenback on Tuesday and was likely to stay in a tight trading range as the U.S. government began a partial shutdown for the first time in 17 years. Federal agencies south of the border were directed to cut back services after lawmakers could not break a political stalemate to keep government operations funded. Investors are concerned about the impact such a shutdown could have on the still-fragile U.S. economic recovery. The uncertainty pushed the greenback down 0.3 percent against a basket of currencies. While the markets may be able to shrug off a shutdown that lasts only a couple of days, analysts say a closure that drags on longer than that will start to bite into growth in the United States, Canada's biggest trading partner. "What's negative for the U.S. growth outlook is also negative for Canada," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. The Canadian dollar was at C$1.0312, or 96.97 U.S. cents, weaker than Monday's close of C$1.0303, or 97.06 U.S. cents. The shutdown also cast uncertainty on two other points of focus for markets: the looming deadline to raise the U.S. debt ceiling and the potential path of the Federal Reserve's economic stimulus program. The next big political battle lawmakers face is raising the $16.7 trillion debt ceiling by mid-October. Failure to do so would force the United States to default on some payment obligations, and Tuesday's government shutdown raised investors' concerns about politicians' ability to come to an agreement. While the political wrangling has shifted some attention away from monetary policy, analysts were also trying to gauge what impact a drawn-out shutdown could have on the Fed's current efforts to prop up the economy. The central bank surprised markets last month by holding the pace of its $85 billion a month in bond purchases steady. "We know the Fed has already delayed tapering once on the back of what could potentially happen in U.S. political gridlock, so should this be a prolonged shutdown, that suggests the Fed could delay again," said Sutton. At home, investors will be watching a speech from Bank of Canada Senior Deputy Governor Tiff Macklem, scheduled for later in the day. Prices for Canadian government bonds were lower across the maturity curve. The two-year bond was down 1-1/2 Canadian cent to yield 1.200 percent and the benchmark 10-year bond fell 11 Canadian cents to yield 2.557 percent.
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