* Ends at C$0.9865 to US$, or $1.0137
* C$ weakens briefly after soft factory data
* Bond prices mixed
By Alastair Sharp
TORONTO, Dec 14 The Canadian dollar weakened
slightly against its U.S. counterpart on Friday, as hopes faded
that a U.S. budget deal will be brokered by the end of the year.
An impasse between Democrats and Republicans is raising the
odds that Congress will fail to meet a year-end deadline to
avert steep U.S. tax hikes and spending cuts.
Many economists believe that failure to reach a fiscal deal
would push the United States - Canada's biggest trading partner
- back into recession and hurt Canada's currency.
Surprisingly weak Canadian manufacturing data early in the
session briefly weighed on the Canadian dollar, which was also
hurt by the broadly cautious tone that hit other growth-oriented
currencies and global stocks.
The Canadian dollar's modest weakness "reflects the
softening in equities today," said Greg Moore, foreign exchange
strategist at TD Securities. "Since the Fed gave a more dovish
statement on Wednesday we've seen risk assets on the back foot."
The U.S. Federal Reserve on Wednesday tied its outlook for
maintaining ultra-low interest rates to an economic threshold
that includes a fall in the unemployment to at least 6.5
percent, as it also launched a fresh round of monetary stimulus.
The Canadian dollar ended at C$0.9865 versus the U.S.
dollar, or $1.0137, compared with Thursday's finish at C$0.9848,
Moore said the Canadian currency could strengthen to roughly
C$0.9750 by the end of the year if a deal is reached, while it
would likely weaken if little progress is made.
For next week, he said some investor focus would turn to the
Bank of Japan policy meeting, but most attention would remain on
Data on Friday showed Canadian manufacturing unexpectedly
plunged by 1.4 percent in October from September, the biggest
drop in nine months, on weakness in major sectors such as motor
vehicles and primary metals.
The currency briefly weakened to a session low after the
numbers, before returning to trade little changed.
"We did have a pretty soft manufacturing report, but it
really did very little to weaken off the currency," said Mark
Chandler, head of fixed income and currency strategy at RBC
Canadian government bond prices were mixed, with
longer-dated debt rising and short-to-medium term bonds
slipping. The two-year bond lost 2 Canadian cents to
yield 1.13 percent, and the benchmark 10-year bond
added 5 cents to yield 1.794 percent.
Markets were also digesting data that showed U.S. consumer
prices fell in November for the first time in six months,
pointing to muted inflation pressures that should allow the
Federal Reserve to stay on its ultra-easy monetary policy path
as it nurses the economy back to health.