CANADA FX DEBT-C$ firms but kept to range by U.S. government shutdown

Fri Oct 4, 2013 4:31pm EDT
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* C$ at C$1.0292 vs US$, or 97.16 U.S. cents
    * U.S. gov't shutdown in 4th day, raises debt ceiling
    * Bond prices lower across curve

    By Leah Schnurr
    TORONTO, Oct 4 (Reuters) - The Canadian dollar strengthened
on Friday though the currency remained in a range as investors
worried that a four-day government shutdown in the United States
was bringing lawmakers closer to a potentially more urgent
deadline to raise the debt ceiling.
    A political impasse over the U.S. budget has shut down
non-essential government services and appeared likely to drag on
for another week or more. 
    Investors are concerned about what impact the standoff will
have on a still-fragile economic recovery. Analysts said a
shutdown that drags on longer than a few days will start to bite
into economic growth in the United States, Canada's biggest
trading partner.
    "So many Canadian officials ... have highlighted the strong
relationship and correlation between Canadian prosperity and
that of the U.S.," said Gareth Sylvester, director at Klarity FX
in Los Angeles. 
    "It almost puts you in the same basket that if we feel that
U.S. growth is going to be adversely affected by this government
shutdown, then certainly that's going to impact Canada."
    Analysts say the longer the shutdown continues, the more
likely it is that negotiations between Democrats and Republicans
will lead to a larger deal that would involve raising the debt
    U.S. lawmakers must raise the government's $16.7 trillion
debt borrowing limit by mid-October, or the United States will
be facing default.
    "The market is getting a wee bit more apprehensive as we
draw closer to the all-important mid-October date for the debt
ceiling," said Dean Popplewell, chief currency strategist at
    "There's too much at stake here, not just for the United
States but globally."
    The Canadian dollar ended the session at C$1.0292,
or 97.16 U.S. cents, stronger than Thursday's close of C$1.0326,
or 96.84 U.S. cents. The U.S. dollar, traditionally seen as a
safe haven, rose 0.5 percent against a basket of currencies
    Following a brief spike after the U.S. Federal Reserve's
decision to stand pat on its economic stimulus program on Sept.
18, the Canadian dollar has been trading in a tight range.
    Barring a resolution or other catalyst, Sylvester sees the
loonie trading in a range between C$1.0280 and C$1.0340.
    "There's very little evidence right now in the near term to
argue we're going to see a directional break from those ranges,"
he said.
    With the government shut down in Washington, the U.S. report
on nonfarm payrolls, one of the most important data releases for
markets, was not issued on Friday as scheduled.
    At home, data showed the pace of purchasing activity in
Canada picked up modestly in September as employment rebounded.
    Prices for Canadian government bonds were lower across the
maturity curve. The two-year bond slipped 2.8
Canadian cents to yield 1.194 percent, while the benchmark
10-year bond lost 33 Canadian cents to yield 2.584