CANADA FX DEBT-Loonie weakens as U.S. budget woes weigh
* C$ at C$1.0311 versus US$ or 96.98 U.S. cents * Worries over U.S. budget impasse keep C$ range-bound * Bond prices higher across the curve By Leah Schnurr TORONTO, Sept 27 (Reuters) - The Canadian dollar weakened modestly against the greenback on Friday and was likely to trade in a narrow range amid uncertainty over whether U.S. congressional lawmakers would reach agreement to keep the government running and avoid a debt default. U.S. House of Representatives Republicans on Thursday refused to give in to President Barack Obama's demand for straightforward bills to run the government beyond Sept. 30 and to increase borrowing authority to avoid a historic default. Investors are concerned about the ramifications of a shutdown and possible default on a still-fragile economic recovery in the United States, Canada's largest trading partner. While the uncertainty was keeping the Canadian dollar stuck in a range, along with other major currencies, the loonie has the potential to benefit from some safe-haven buying if risk-aversion enters the markets, said Dean Popplewell, chief currency strategist at OANDA in Toronto. "If there's any risk being applied out there, certainly the Canadian dollar will do a wee bit better," he said. The Canadian dollar was at C$1.0311, or 96.98 U.S. cents, weaker than Thursday's close of 1.0313, or 96.96 U.S. cents. Portfolio reshuffling heading into the end of the month and quarter could also lead to some gyrations in the loonie, said Popplewell. "There's certainly a demand for U.S. dollars on most people's books, and you will probably see an unexplained price movement toward owning U.S. dollars" that could lead to some selling in the Canadian dollar, said Popplewell. While the budget impasse has shifted some attention away from the U.S. Federal Reserve's surprising recent decision not to scale back its massive bond purchases, investors continued to sift through policymakers' comments for insight on when the Fed may begin its stimulus wind-down. The Canadian dollar hit a three-month high in the wake of the Fed's announcement last week, but has since pulled back. On Friday, Chicago Fed President Charles Evans said there was a decent chance the central bank could reduce the pace of its $85 billion a month in bond purchases this year, but there were risks that could delay it to next year. With the importance the labor market plays in the direction of monetary policy, attention was already turning to next week's U.S. unemployment report. The economy is expected to have added 180,000 jobs in September, while the unemployment rate is seen edging up to 7.3 percent. Prices for Canadian government bonds were higher. The two-year bond was up 1.2 Canadian cent to yield 1.210 percent. The benchmark 10-year bond rose 32 Canadian cents to yield 2.551 percent.
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