CANADA FX DEBT-C$ softens to one-week low as Fed, U.S. budget eyed
* C$ at C$1.0313 against U.S. dollar * Focus stays on U.S. budget, Fed-tapering uncertainty * Bond prices mostly higher across the curve By Leah Schnurr TORONTO, Sept 25 (Reuters) - The Canadian dollar touched its lowest level in a week on Wednesday as a lack of domestic catalysts turned market focus to the path of monetary policy in the United States and a potential shutdown of the government of the world's biggest economy. After the U.S. Federal Reserve's recent unexpected decision to maintain the pace of its stimulative bond-buying program, investors have been combing through the comments of Fed policymakers, seeking insight on how long the stimulus measures will continue. With more officials scheduled to speak through the rest of the week and no major Canadian economic data on tap, the question of when the Fed will reduce its massive economic stimulus is likely to hold the market's attention. "The Fed statement itself, the Q&A session afterwards and the plethora of Fed speakers we've seen this week have not really provided much clarity," said Greg Moore, FX strategist at TD Securities. "That's why we've had this lack of strong direction in the markets." The Canadian dollar ended at C$1.0313 to the U.S. dollar, or 96.96 U.S. cents, weaker than Tuesday's session close of C$1.0302, or 97.07 U.S. cents. It earlier hit its lowest level since Sept. 17, the day before the Fed announcement. The Fed is currently buying $85 billion in bonds a month to keep borrowing costs low to prop up the U.S. economic recovery. The Canadian dollar touched a three-month high in the wake of the Fed's decision to stand pat, but has since pulled back. "Commodity currencies, and the Canadian dollar included, have come off their highs reached right after the Fed announcement. A lot of that has to do with the subtle risk aversion that we've seen creep into the markets the past few days," Moore said. Part of that wariness results from investors turning their attention to the possibility of a U.S. budget impasse in Congress that could shut down government. The U.S. Senate voted unanimously on Wednesday to begin advancing legislation to avert government agency shutdowns that could begin with the new fiscal year at the start of October. Still, tough fights in the Senate and the House remain. Separately, another political battle over raising the U.S. government debt ceiling looms before long. Failure to increase the $16.7 trillion borrowing limit could force Washington to begin defaulting on its obligations. Republican leaders in the House of Representatives notified members that a vote on raising the debt limit could come as early as Friday. "The debt ceiling looks like it will be a little bit more acrimonious," said Benjamin Reitzes, senior economist and foreign exchange strategist at BMO Capital Markets. "It will probably go down to the wire but I would hope that things at least move in the right direction. We're not really sure what would happen if they didn't raise the debt ceiling. We haven't gone down that road before, but I can't imagine it would be at all positive for financial markets." The last debt ceiling fight in 2011 saw a solution reached only at the last minute and led to a ratings downgrade from Standard and Poor's. Prices for Canadian government bonds were mostly higher across the maturity curve, though the two-year bond was off half a cent to yield 1.211 percent. The benchmark 10-year bond rose 21 Canadian cents to yield 2.575 percent.
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