CANADA FX DEBT-C$ weakens as U.S. government shutdown drags on

Fri Oct 4, 2013 9:58am EDT

* C$ at C$1.0330 vs US$, or 96.81 U.S. cents
    * U.S. gov't shutdown in 4th day, raises debt ceiling
concerns
    * Bond prices lower across curve

    By Leah Schnurr
    TORONTO, Oct 4 (Reuters) - The Canadian dollar weakened
against the greenback on Friday as investors were becoming more
anxious about the effects of the U.S. government shutdown, which
entered its fourth day. 
    A political impasse over the U.S. budget has shut down
non-essential government services and appeared likely to drag on
for another week or more. Analysts say the longer the shutdown
continues, the more likely it is that negotiations between
Democrats and Republicans will lead to a deal that would involve
raising the debt ceiling. 
    Investors are also concerned about what impact the standoff
will have on a still-fragile economic recovery. Analysts said a
shutdown that drags on longer than a few days will start to bite
into economic growth in the United States, Canada's biggest
trading partner.
    "The market is getting a wee bit more apprehensive as we
draw closer to the all-important mid-October date for the debt
ceiling," said Dean Popplewell, chief currency strategist at
OANDA.  
    "There's too much at stake here, not just for the United
States but globally."
    U.S. lawmakers must raise the government's $16.7 trillion
debt borrowing limit by mid-October, or the United States will
be facing default.
    With the government shut down, the U.S. report on nonfarm
payrolls report, one of the most important data releases for
markets, was not issued on Friday as scheduled.
    At home, investors will get a reading on the pace of
purchasing activity in Canada for September at 10 am ET (1400
GMT). The index is expected to rise modestly from the previous
month. 
    The Canadian dollar was at C$1.0330, or 96.81 U.S.
cents, weaker than Thursday's close of C$1.0326, or 96.84 U.S.
cents.
    Following a brief spike after the U.S. Federal Reserve's
decision to stand pat on its economic stimulus program on Sept.
18, the Canadian dollar has been trading in a tight range.
    The government shutdown has also cast uncertainty on when
the Fed may start to reduce its monetary stimulus, which
currently stands at $85 billion a month.
    Analysts were speculating any fiscal drag on the economy
could prevent the Fed from reducing those bond purchases as soon
as had been expected. 
    Prices for Canadian government bonds were lower across the
maturity curve. The two-year bond slipped 3.3
Canadian cents to yield 1.197 percent, while the benchmark
10-year bond lost 22 Canadian cents to yield 2.570
percent.
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