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

Tue Nov 20, 2012 5:02pm EST

* C$ at C$0.9973 to the U.S. dollar, or $1.0027
    * Risk appetite curbed by Bernanke warning on fiscal cliff
    * C$ 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 weakened 
a gainst the U.S. dollar on Tuesday as U.S. Federal Reserve
Chairman Ben Bernanke warned again that economic recovery could
be derailed if the United States falls over its "fiscal cliff"
of higher taxes and lower government spending. 
    The fate of the Canadian dollar is closely tied to the U.S.
economy, Canada's largest export market, and Bernanke said the
U.S. central bank does not have the tools to offset the damage 
the fiscal cliff could do if a compromise is not found to avoid
it. He was also cautious about the strength of the U.S. 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 the steps the Fed would take after
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 of expiring tax cuts and government 
spending reductions that could lead to recession. 
     The Canadian dollar ended trade at C$0.9973 to the
U.S. dollar, or $1.0027, compared with 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 late on Monday
of France's prized triple-A credit rating. The ratings agency
cited an uncertain fiscal outlook and deteriorating economy for
the cut. 
    Euro-zone finance ministers were meeting on Tuesday to
discuss unlocking delayed aid payments to Greece, a day after
Athens passed laws to enforce budget targets to 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.
    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 such as 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 3 Canadian cents
to yield 1.112 percent, and the benchmark 10-year bond
 slipping 20 cents to yield 1.759 percent.
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