CANADA FX DEBT-C$ firms as US$ struggles over debt talks

Mon Jul 25, 2011 8:32am EDT
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* C$ rises to $0.9454 vs US$, or $1.0578

* Bond prices lower, but outperform US Treasuries

By Claire Sibonney

TORONTO, July 25 (Reuters) - The Canadian dollar firmed against its U.S. counterpart on Monday morning after a failure to reach a deal to raise the U.S. debt ceiling weighed heavily on the U.S. dollar.

The breakdown in U.S. budget talks fueled demand for perceived safe-haven currencies, as the greenback hit a record low versus the Swiss franc and a four-month trough against the yen. [FRX/]

But the Canadian dollar -- which usually trades alongside riskier assets such as equities and commodities -- bucked the broad flight-to-safety trend, and benefited as well.

"People more and more are seeing Canada as a place where you can put money more safely," said Charles St-Arnaud, Canadian economist and currency strategist with Nomura Securities International in New York.

"It's mainly a flight to safety given what's going on in the United States ... people look at the second best solution. They want a triple-A government that has a decent sized bond market."

Most investors expect a U.S. deal will be done before the Aug. 2 deadline to avert default, but the lack of progress in talks over how to cut the budget deficit and raise the debt ceiling, heightened the possibility of a ratings downgrade of U.S. debt and weighed on risk sentiment, which analysts said would keep dogging the greenback. [nN1E76M0B0][ID:nN1E76N0CA]   Continued...