CANADA FX DEBT-C$ weakens as Bernanke warns on fiscal cliff

Tue Nov 20, 2012 3:13pm EST

* C$ at C$0.9977 to the U.S. dollar, or $1.0023
    * Bernanke warning on fiscal cliff weighs on risk appetite
    * Supported by optimism Greece will receive aid funding
    * Canadian wholesale trade unexpectedly falls in Sept

    By Alastair Sharp and Solarina Ho
    TORONTO, Nov 20 (Reuters) - The Canadian dollar touched a
session low against the U.S. dollar on Tuesday, as Federal
Reserve chairman Ben Bernanke repeated a warning that running
over the "cliff" of expiring tax cuts and government spending
cuts could derail the U.S. recovery. 
    Bernanke said the U.S. central bank does not have the tools
to offset the damage of going off the fiscal cliff, and erred on
the side of caution in describing a housing market recovery.
    "We've had good housing data of late and he's still quite
cautionary on that front," said Mark Chandler, head of Canadian
fixed income and currency strategy at Royal Bank of Canada. 
    Chandler added that "there may have been some misplaced
hope" Bernanke would detail what the central bank would do once
its Operation Twist stimulus program ends in December.
    Bernanke said 2013 could be a "very good year" for the U.S.
economy if politicians can strike a quick deal to avoid the
so-called fiscal cliff. 
    The fate of the Canadian dollar is closely tied to the U.S.
economy, Canada's largest export market.
    At 3:03 p.m. EST (2003 GMT), the Canadian dollar 
was trading at C$0.9977 to the U.S. dollar, or $1.0023, compared
to Monday's North American finish of C$0.9966, or $1.0034.
    The currency had been steady for much of the morning
session, supported by cautious optimism that debt-ridden Greece
was on track to receive aid funding. 
    Hopes for Greek aid offset Moody's downgrade of France's
prized triple-A rating. The ratings agency cited an uncertain
fiscal outlook and deteriorating economy for the cut.
 
    Finance ministers meet on Tuesday to discuss unlocking
delayed aid payments to Greece, a day after Athens passed laws
to enforce budget targets and appease foreign lenders.
    "The bigger news will be if they don't get their money.
You'll see a much stronger market reaction than if they do get
their money because the market's probably operating on the
assumption that they will," said Matt Perrier, director of
foreign exchange sales at BMO Capital Markets.
    Canada's dollar was likely to trade between C$0.9935 and
C$0.9995, Perrier said.
    The Canadian dollar's performance was mixed against other
major currencies, outperforming commodities-linked counterparts
such as the Australian dollar, but underperforming the
euro and British pound.
    The currency showed little reaction to Canadian wholesale
trade data, which showed an unexpected fall of 1.4 percent in
September from August. 
    
    TRADERS EYE IMF REPORT
    Currency analysts said a more encouraging development for
the Canadian dollar was a discussion by the International
Monetary Fund on having big currency holders like central banks
disclose more details on their holdings of Canadian and
Australian dollars.
    A public information notice last week by the IMF executive
board supported an August report recommending the IMF's Currency
Composition of Foreign Exchange Reserves data be expanded to
separately identify holdings of the two commodity-linked
currencies.
    "This has to be seen as a rather strong endorsement for both
currencies," analyst Dennis Gartman wrote in his daily Gartman
letter.
    Canada's economy recovered more strongly from the 2008
financial crisis than its Group of Seven peers and it remains
one of the few developed countries to retain an undisputed
triple-A credit rating.
    Prices for Canadian government debt were lower across the
curve, with the two-year bond down 2 Canadian cents
to yield 1.107 percent and the benchmark 10-year bond
 slipping 15 cents to yield 1.753 percent.
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