CANADA FX DEBT-Loonie weaker on U.S. shutdown, Yellen nomination
* C$ at C$1.0374 vs US$, or 96.39 U.S. cents * Janet Yellen to be nominated to head Federal Reserve * Shutdown, looming debt ceiling deadline has markets wary * Bond prices mixed By Leah Schnurr TORONTO, Oct 9 (Reuters) - The Canadian dollar weakened on Wednesday as the U.S. government shutdown stretched on and as news that Janet Yellen will be nominated to run the Federal Reserve pushed the greenback higher. President Barack Obama will nominate Fed number two Yellen on Wednesday to head the central bank. Investors were relieved to get clarity on at least one unknown in the markets and analysts say she will move cautiously in reining in the economic stimulus the Fed has put in place. At the same time, the partial federal government shutdown in the United States dragged on. Obama said he would negotiate on budget issues only if Republicans agree to re-open the federal government and raise the debt limit with no conditions. A budget impasse closed non-essential U.S. government services early last week and the showdown is bringing lawmakers closer to a separate and more crucial deadline to raise the debt ceiling to avoid a potential default. Investors are concerned the government shutdown will start to bite into economic growth, which could hurt Canada, the largest trading partner with the United States. The possibility of a default has also sparked fears of the havoc it would wreak on the global economy and markets. Wednesday's strength in the U.S. dollar is unlikely to last as the focal point turns back to the country's fiscal problems, said Benjamin Reitzes, senior economist and foreign exchange strategist at BMO Capital Markets in Toronto. "A weaker U.S. economy is clearly bad for Canada, so if the U.S. dollar does weaken, Canada may not benefit that much," said Reitzes. The Canadian dollar was at C$1.0374, or 96.39 U.S. cents, weaker than Tuesday's close of C$1.0368, or 96.45 U.S. cents. The U.S. dollar was up 0.5 percent against a basket of currencies. The United States has until mid-October before it hits the $16.7 trillion borrowing limit. The impasse was reminiscent of the 2011 showdown over the debt ceiling, which yielded an agreement only at the last minute. "Accidents do happen when you're playing with fire. They avoided it last time, who knows if they'll avoid it this time," said Reitzes. "I'd expect something short-term - a few weeks or months - to give the government more time to negotiate amongst themselves." Following a brief spike after the Federal Reserve's surprise decision to stand pat on its economic stimulus on Sept. 18, the Canadian dollar has been trading in a tight range for several sessions. The minutes of that Fed meeting will be released later on Wednesday and investors will be looking for clues as to how close the bank came to scaling back its stimulus. Analysts see the loonie in a range between mid-C$1.02 and mid-C$1.03 for now, baring a resolution or other catalyst. Prices for Canadian government bonds were mixed across the maturity curve. The two-year bond slipped 1 Canadian cent to yield 1.195 percent, while the benchmark 10-year bond fell 20 Canadian cents to yield 2.564 percent.
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