CANADA FX DEBT-Loonie weaker on U.S. shutdown, Yellen nomination

Wed Oct 9, 2013 9:46am EDT
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* C$ at C$1.0374 vs US$, or 96.39 U.S. cents
    * Janet Yellen to be nominated to head Federal Reserve
    * Shutdown, looming debt ceiling deadline has markets wary
    * Bond prices mixed

    By Leah Schnurr
    TORONTO, Oct 9 (Reuters) - The Canadian dollar weakened on
Wednesday as the U.S. government shutdown stretched on and as
news that Janet Yellen will be nominated to run the Federal
Reserve pushed the greenback higher. 
    President Barack Obama will nominate Fed number two Yellen
on Wednesday to head the central bank. Investors were relieved
to get clarity on at least one unknown in the markets and
analysts say she will move cautiously in reining in the economic
stimulus the Fed has put in place. 
    At the same time, the partial federal government shutdown in
the United States dragged on. Obama said he would negotiate on
budget issues only if Republicans agree to re-open the federal
government and raise the debt limit with no conditions.
    A budget impasse closed non-essential U.S. government
services early last week and the showdown is bringing lawmakers
closer to a separate and more crucial deadline to raise the debt
ceiling to avoid a potential default.
    Investors are concerned the government shutdown will start
to bite into economic growth, which could hurt Canada, the
largest trading partner with the United States. The possibility
of a default has also sparked fears of the havoc it would wreak
on the global economy and markets.
    Wednesday's strength in the U.S. dollar is unlikely to last
as the focal point turns back to the country's fiscal problems,
said Benjamin Reitzes, senior economist and foreign exchange
strategist at BMO Capital Markets in Toronto.
    "A weaker U.S. economy is clearly bad for Canada, so if the
U.S. dollar does weaken, Canada may not benefit that much," said
    The Canadian dollar was at C$1.0374, or 96.39 U.S.
cents, weaker than Tuesday's close of C$1.0368, or 96.45 U.S.
cents. The U.S. dollar was up 0.5 percent against a basket of
    The United States has until mid-October before it hits the
$16.7 trillion borrowing limit. The impasse was reminiscent of
the 2011 showdown over the debt ceiling, which yielded an
agreement only at the last minute.
    "Accidents do happen when you're playing with fire. They
avoided it last time, who knows if they'll avoid it this time,"
said Reitzes.
    "I'd expect something short-term - a few weeks or months -
to give the government more time to negotiate amongst
    Following a brief spike after the Federal Reserve's surprise
decision to stand pat on its economic stimulus on Sept. 18, the
Canadian dollar has been trading in a tight range for several
    The minutes of that Fed meeting will be released later on
Wednesday and investors will be looking for clues as to how
close the bank came to scaling back its stimulus.
    Analysts see the loonie in a range between mid-C$1.02 and
mid-C$1.03 for now, baring a resolution or other catalyst.
    Prices for Canadian government bonds were mixed across the
maturity curve. The two-year bond slipped 1 Canadian
cent to yield 1.195 percent, while the benchmark 10-year bond
 fell 20 Canadian cents to yield 2.564 percent.