CANADA FX DEBT-C$ firms to 2-week high in wake of U.S. deal

Thu Oct 17, 2013 4:36pm EDT
 
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* C$ at C$1.0293 vs US$, or 97.15 U.S. cents
    * Canadian bond prices higher across the maturity curve


    By Leah Schnurr
    TORONTO, Oct 17 (Reuters) - The Canadian dollar strengthened
to a more than two-week high on Thursday as the greenback
tumbled with investors trying to gauge what impact the U.S.
government shutdown will have on economic growth and monetary
policy.
    U.S. lawmakers came to a last-minute agreement on Wednesday
night that ended a two-week partial government shutdown and
avoided a potential default. But the deal is only a temporary
solution and raises the possibility of another budget impasse in
the new year. 
    Investors were assessing how much of a bite the shutdown may
have taken out of U.S. economic growth. Canada's fortunes are
closely tied to its neighbor south of the border, which is its
largest trading partner, and the uncertainty kept the loonie's
strength in check.
    "What is viewed as a negative for the U.S. economic outlook
is going to have an adverse effect and dampen expectations for 
Canadian growth as well," said Gareth Sylvester, director at
Klarity FX in San Francisco.
    Weaker growth prospects could mean the Fed will have to
maintain its $85 billion a month in asset purchases longer than
had been anticipated.
    The release of a backlog of U.S. data that was postponed by
the shutdown - including September's jobs report - will be key
to assessing the Fed's likely path.
    The Canadian dollar closed the session at C$1.0293
versus the U.S. dollar, or 97.15 U.S. cents, stronger than
Wednesday's close of C$1.0334, or 96.77 U.S. cents. The loonie
touched a session high of C$1.0280.
    The greenback slumped 1 percent against a basket of
currencies. Expectations of a delay in reducing the Fed's
stimulus tends to weigh on the dollar, partly because it pushes
expectations of an eventual interest rate increase out further. 
    Investors were also turning their attention to the Bank of
Canada's interest rate decision next week. While the central
bank is seen keeping rates at 1 percent, investors will be
parsing the statement for any change in tone that could give
clues as to how long the Bank will stay on hold.
    "Given the government closure and that they're still trying
to assess the impact on U.S. growth, it's unlikely they're going
to hold a hawkish tone," said Sylvester.
    Government bond prices were higher across the maturity
curve. The two-year bond rose 7-1/2 Canadian cents to
yield 1.177 percent, while the benchmark 10-year bond
 gained 40 Canadian cents to yield 2.565 percent.