CANADA FX DEBT-C$ softens to one-week low as Fed, U.S. budget eyed

Wed Sep 25, 2013 4:51pm EDT
 
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* C$ at C$1.0313 against U.S. dollar
    * Focus stays on U.S. budget, Fed-tapering uncertainty
    * Bond prices mostly higher across the curve


    By Leah Schnurr
    TORONTO, Sept 25 (Reuters) - The Canadian dollar touched its
lowest level in a week on Wednesday as a lack of domestic
catalysts turned market focus to the path of monetary policy in
the United States and a potential shutdown of the government of
the world's biggest economy.
    After the U.S. Federal Reserve's recent unexpected decision
to maintain the pace of its stimulative bond-buying program,
investors have been combing through the comments of Fed
policymakers, seeking insight on how long the stimulus measures
will continue.
    With more officials scheduled to speak through the rest of
the week and no major Canadian economic data on tap, the
question of when the Fed will reduce its massive economic
stimulus is likely to hold the market's attention.
    "The Fed statement itself, the Q&A session afterwards and
the plethora of Fed speakers we've seen this week have not
really provided much clarity," said Greg Moore, FX strategist at
TD Securities. 
    "That's why we've had this lack of strong direction in the
markets."
    The Canadian dollar ended at C$1.0313 to the U.S.
dollar, or 96.96 U.S. cents, weaker than Tuesday's session close
of C$1.0302, or 97.07 U.S. cents. It earlier hit its lowest
level since Sept. 17, the day before the Fed announcement.
    The Fed is currently buying $85 billion in bonds a month to
keep borrowing costs low to prop up the U.S. economic recovery.
The Canadian dollar touched a three-month high in the wake of
the Fed's decision to stand pat, but has since pulled back.
    "Commodity currencies, and the Canadian dollar included,
have come off their highs reached right after the Fed
announcement. A lot of that has to do with the subtle risk
aversion that we've seen creep into the markets the past few
days," Moore said.
    Part of that wariness results from investors turning their
attention to the possibility of a U.S. budget impasse in
Congress that could shut down government. 
    The U.S. Senate voted unanimously on Wednesday to begin
advancing legislation to avert government agency shutdowns that
could begin with the new fiscal year at the start of October.
Still, tough fights in the Senate and the House remain.
 
    Separately, another political battle over raising the U.S.
government debt ceiling looms before long. Failure to increase
the $16.7 trillion borrowing limit could force Washington to
begin defaulting on its obligations. 
    Republican leaders in the House of Representatives notified
members that a vote on raising the debt limit could come as
early as Friday.
    "The debt ceiling looks like it will be a little bit more
acrimonious," said Benjamin Reitzes, senior economist and
foreign exchange strategist at BMO Capital Markets.
    "It will probably go down to the wire but I would hope that
things at least move in the right direction. We're not really
sure what would happen if they didn't raise the debt ceiling. We
haven't gone down that road before, but I can't imagine it would
 be at all positive for financial markets."
    The last debt ceiling fight in 2011 saw a solution reached
only at the last minute and led to a ratings downgrade from
Standard and Poor's. 
    Prices for Canadian government bonds were mostly higher
across the maturity curve, though the two-year bond 
was off half a cent to yield 1.211 percent. The benchmark
10-year bond rose 21 Canadian cents to yield 2.575
percent.