CANADA FX DEBT-C$ weakens for second day as Fed, budget issues eyed
* C$ at C$1.0311 against U.S. dollar * U.S. budget, Fed tapering uncertainty remain in focus * Bond prices mixed across the curve By Leah Schnurr TORONTO, Sept 25 (Reuters) - The Canadian dollar weakened for a second day on Wednesday as a lack of domestic catalysts turned investors' focus to the path of monetary policy in the United States and a potential government shutdown in the world's biggest economy. After the Federal Reserve's recent unexpected decision to maintain the pace of its stimulative bond-buying program, investors have sought insight, on how long the stimulus will continue, from the comments of several Fed policymakers. 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. "We're focused on the States and Fed tapering prospects, and how those evolve is really going to be what drives the Canadian dollar," said Benjamin Reitzes, senior economist and foreign exchange strategist at BMO Capital Markets. The Fed's next meeting in October may be too soon for the Fed to announce a pull back as it won't give policymakers enough time to get much more economic data, said Reitzes. "December seems like the better bet, assuming the economic data picks up to some extent because the Fed does want to see things improve." The Fed is currently buying $85 billion in bonds a month to keep borrowing costs low and prop up the 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. The Canadian dollar was at C$1.0311 to the U.S. dollar, or 96.98 U.S. cents, weaker than Tuesday's session close of C$1.0302, or 97.07 U.S. cents. Investors were also turning their attention to U.S. budget concerns. A vote is due in the U.S. Senate later on a motion that will allow the government to keep running beyond the end of the month when budgets are due to expire, with a marathon attack on Obamacare overnight by Republican Senator Ted Cruz delaying consideration of the stop-gap funding measure. Separately, another political battle over raising the debt ceiling looms before long. Failure to increase the $16.7 trillion borrowing limit could force the U.S. to begin defaulting on its obligations. "The debt ceiling looks like it will be a little bit more acrimonious," said Reitzes. "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 mixed across the maturity curve, with the two-year bond off a cent to yield 1.213 percent. The benchmark 10-year bond rose 7 Canadian cents to yield 2.592 percent.
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