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* C$ at C$0.9435 vs US$, or $1.0600
* Bond prices flat, outperform U.S. Treasuries
By Claire Sibonney
TORONTO, July 27 (Reuters) - The Canadian dollar eased from a more than 3-1/2-year high against a battered greenback on Wednesday morning as political wrangling over the U.S. debt limit weighed on Canadian assets by association and proximity to the United States, its largest trading partner.
The U.S. dollar fell to a record low against the Swiss franc CHF= and a four-month low against the yen JPY= as talks aimed at averting a U.S. debt ratings downgrade or default remained deadlocked ahead of an Aug. 2 deadline to raise the U.S. federal debt ceiling or face default. [FRX/]
"The Canadian dollar, our association with the U.S. is well known, the reason that we haven't rallied as much as others have is because of that," said Firas Askari, head of foreign exchange trading at BMO Capital Markets.
"I think once this is out of the way, with the (Bank of Canada's) slightly more hawkish bent since the last statement, I think Canada should do okay," he said, adding the Canadian dollar could strengthen to C$0.92 against the U.S. dollar by the end of the summer.
At 8:36 a.m. (1236 GMT), the Canadian dollar CAD=D4 stood at C$0.9435 to the U.S. dollar or $1.0600, slightly down from the North American session close on Tuesday of C$0.9428 to the U.S. currency, or $1.0607.
Data on Wednesday morning that showed U.S. durable goods orders unexpectedly fell in June did not help the Canadian currency. For more see [ID:nN1E76Q07T].
On Tuesday, the Canadian currency CAD=D4 climbed as high as C$0.9407 to the U.S. dollar, or $1.0630, its strongest since November 2007 when it hit a modern-day high.
Askari said there was good support for the U.S. dollar around C$0.9400, while the Canadian dollar was meandering in the C$0.9410-50 range.
In recent weeks analysts have said Canada is increasingly being viewed by global investors as a safe haven, valued for its political stability, solid central bank and relatively healthy finances, in addition to its resource base.
However, Askari said the Canadian dollar would not become a safe-haven currency of much weight, because of its association with the United States and its limited liquidity.
"There's not enough depth to the Canadian dollar market to act as a long-term safe-haven currency," he said. "I think we would be part of any bundle of safe-haven currencies if there's a flight to quality but we would not be the primary destination."
Canadian government bond prices were also flat, though they outperformed U.S. Treasuries as the cost of insuring U.S. government debt against a default within a year rose to a record high. [US/]
The two-year Canadian government bond CA2YT=RR was unchanged at 1.481 percent, while the 10-year bond CA10YT=RR was up 2 Canadian cents to yield 2.891 percent. (Editing by James Dalgleish)