CANADA FX DEBT-Loonie weaker on U.S. shutdown, Yellen nomination

Wed Oct 9, 2013 4:31pm EDT
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* C$ at C$1.0394 vs US$, or 96.21 U.S. cents
    * Janet Yellen nominated to head Federal Reserve
    * Shutdown, looming debt ceiling deadline has markets wary
    * Bond prices lower

    By Leah Schnurr
    TORONTO, Oct 9 (Reuters) - The Canadian dollar weakened on
Wednesday as the U.S. government shutdown stretched on and as
the nomination of Janet Yellen to run the Federal Reserve pushed
the greenback higher. 
    Investors also parsed minutes from last month's Fed meeting
that showed its unexpected decision not to withdraw its economic
stimulus was a "relatively close call". The loonie weakened to
near session lows shortly after the minutes were released.
    President Barack Obama nominated Fed number two Yellen on
Wednesday to head the central bank. Investors were relieved to
get clarity on at least one unknown in the markets, and analysts
say she will move cautiously in reining in the economic stimulus
the Fed has put in place. 
    At the same time, the partial federal government shutdown in
the United States was in its ninth day, though there were signs
of hope for a resolution. 
    Members of both parties floated the possibility of a
short-term increase in the debt limit to allow time for broader
negotiations on the budget. 
    A impasse has closed non-essential U.S. government services
since early last week and the showdown is bringing lawmakers
closer to a separate and more crucial mid-October deadline to
raise the debt ceiling to avoid a potential default.
    Investors are concerned the government shutdown will start
to bite into economic growth, which could hurt Canada, the
largest trading partner with the United States. 
    "No matter what happens with the fiscal situation, I believe
the Canadian dollar is in a bit of trouble. Bad for the U.S.
equals bad for North America," said John Curran, senior vice
president at CanadianForex in Toronto.
    "If they sort it out, that would be good for the dollar, so
it's a bit of a double-whammy." 
    The Canadian dollar ended the session at C$1.0394,
or 96.21 U.S. cents, weaker than Tuesday's close of C$1.0368, or
96.45 U.S. cents. The U.S. dollar was up 0.4 percent against a
basket of currencies.
    The United States has until mid-October before it hits the
$16.7 trillion borrowing limit. The impasse was reminiscent of
the 2011 showdown over the debt ceiling, which yielded an
agreement only at the last minute.
    "Accidents do happen when you're playing with fire. They
avoided it last time, who knows if they'll avoid it this time,"
said Benjamin Reitzes, senior economist and foreign exchange
strategist at BMO Capital Markets in Toronto.
    "I'd expect something short-term - a few weeks or months -
to give the government more time to negotiate amongst
    Prices for Canadian government bonds were lower across the
maturity curve. The two-year bond slipped 2 Canadian
cents to yield 1.200 percent, while the benchmark 10-year bond
 fell 10 Canadian cents to yield 2.579 percent.