CANADA FX DEBT-C$ firms to 2-week high in wake of U.S. deal
* C$ at C$1.0293 vs US$, or 97.15 U.S. cents * Canadian bond prices higher across the maturity curve By Leah Schnurr TORONTO, Oct 17 (Reuters) - The Canadian dollar strengthened to a more than two-week high on Thursday as the greenback tumbled with investors trying to gauge what impact the U.S. government shutdown will have on economic growth and monetary policy. U.S. lawmakers came to a last-minute agreement on Wednesday night that ended a two-week partial government shutdown and avoided a potential default. But the deal is only a temporary solution and raises the possibility of another budget impasse in the new year. Investors were assessing how much of a bite the shutdown may have taken out of U.S. economic growth. Canada's fortunes are closely tied to its neighbor south of the border, which is its largest trading partner, and the uncertainty kept the loonie's strength in check. "What is viewed as a negative for the U.S. economic outlook is going to have an adverse effect and dampen expectations for Canadian growth as well," said Gareth Sylvester, director at Klarity FX in San Francisco. Weaker growth prospects could mean the Fed will have to maintain its $85 billion a month in asset purchases longer than had been anticipated. The release of a backlog of U.S. data that was postponed by the shutdown - including September's jobs report - will be key to assessing the Fed's likely path. The Canadian dollar closed the session at C$1.0293 versus the U.S. dollar, or 97.15 U.S. cents, stronger than Wednesday's close of C$1.0334, or 96.77 U.S. cents. The loonie touched a session high of C$1.0280. The greenback slumped 1 percent against a basket of currencies. Expectations of a delay in reducing the Fed's stimulus tends to weigh on the dollar, partly because it pushes expectations of an eventual interest rate increase out further. Investors were also turning their attention to the Bank of Canada's interest rate decision next week. While the central bank is seen keeping rates at 1 percent, investors will be parsing the statement for any change in tone that could give clues as to how long the Bank will stay on hold. "Given the government closure and that they're still trying to assess the impact on U.S. growth, it's unlikely they're going to hold a hawkish tone," said Sylvester. Government bond prices were higher across the maturity curve. The two-year bond rose 7-1/2 Canadian cents to yield 1.177 percent, while the benchmark 10-year bond gained 40 Canadian cents to yield 2.565 percent.
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