CANADA FX DEBT-C$ falls to 2-week low on 'fiscal cliff' anxiety

Fri Dec 21, 2012 4:35pm EST

* C$ ends at C$0.9934 vs US$, or $1.0066
    * Bond prices mixed across the curve
    * U.S. Republicans' 'Plan B' tax bill fails
    * Canada November CPI data disappoints

    By Claire Sibonney
    TORONTO, Dec 21 (Reuters) - The Canadian dollar hit a more
than two-week low against its U.S. counterpart on Friday as
hopes that a U.S. budget deal would be reached before the new
year dissipated and uninspiring domestic economic data added to
a cheerless mood in markets.
    Republican House Speaker John Boehner failed to garner
enough votes even from his own party to pass his "Plan B" tax
bill late on Thursday. This was the latest setback in
negotiations to avoid $600 billion in tax hikes and spending
cuts that some say could tip the U.S. economy into recession.
 
    Investors' lack of confidence in the prospect of a deal
between the White House and Republicans boosted demand for the
most liquid government bonds and safe-haven currencies.
    Meanwhile, data showed Canada's annual inflation rate in
November fell to a three-year low, while also showing the
economy eked out only a tiny gain in October. 
 
    "CAD is obviously materially weaker today than where it
closed and really most of the move was driven off of fiscal
cliff concerns, a little bit of a move on some of the data but
not really," said Camilla Sutton, chief currency strategist at
Scotiabank.
     "The data from the U.S. was generally more positive and the
data from Canada was somewhat mixed: as-expected GDP and softer
inflation.  We had a little bit of weakness on that but not
material."
    In the United States, the day's round of data indicated that
the economy showed surprising signs of resilience in November as
consumer spending rose the most in three years and a gauge of
business investment jumped. 
    The Canadian dollar ended the North American
session at C$0.9934, or $1.0066, compared with Thursday's finish
at C$0.9873 versus the U.S. dollar, or $1.0129. Earlier, the
currency hit a session low of C$0.9953, or $1.0047, its weakest
level since Dec. 4.
    Scotiabank's 2013 currency outlook on Friday predicted the
Canadian dollar would strengthen to C$0.96, or $1.042, by the
end of next year, supported by relatively hawkish monetary
policy, a strong fiscal backdrop, and Canada's triple-A credit
rating.
    Looking to next week in particular, Sutton said thin holiday
trading volumes could cause awkward price moves, pegging the
range between parity and C$0.9820-40.
    "The overwhelming issue affecting markets this week,
including today, is the U.S. fiscal cliff negotiations," said
Carlos Leitao, chief economist at Laurentian Bank Securities in
Montreal.
    "Here we are on Dec. 21 and besides being the (Mayan
calendar) end of the world, it's also very close to Christmas
and most people had expected, that by now, there would already
have been a deal. So from that perspective, it's a little
disappointing."
    Canadian government bond prices were mixed across the curve.
The two-year bond was up 4 Canadian cents, yielding
1.112 percent, while the benchmark 10-year bond 
climbed 32 Canadian cents to yield 1.804 percent.
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