* C$ falls to C$0.9516 vs US$, or $1.0509
* U.S. uncertainty keeps money on sidelines, vote looms
* Bond prices mostly firmer
By Andrea Hopkins
TORONTO, July 28 The Canadian dollar edged
lower against its U.S. counterpart on Thursday, trading in a
tight range as investors awaited a crucial vote in the United
States on a bill to cut the deficit.
The Canadian currency had strengthened earlier in the day
but sold off slightly as a vote loomed in the United States on
Thursday, where lawmakers are working to compromise on a
deficit reduction plan that would head off a U.S. default.
"It's been in a very tight range in the last couple of
days, and we're just kind of waiting for some outcome in the
U.S., some announcement on the U.S. debt crisis," said David
Bradley, director of foreign exchange trading at Scotia
He said the Canadian dollar remained a preferred currency
for central banks looking to diversify out of the U.S. dollar
and euro currencies, given the debt crises facing each region.
Like other commodity-linked currencies, the Canadian dollar has
benefited from a flight-to-safety flow in recent months.
Moody's debt rating agency reaffirmed its Aaa rating on
Canada's sovereign debt in its annual report on Canada on
Thursday, citing the nation's economic resiliency, very high
government financial strength and a low susceptibility to event
"Canada has weakened today but it looks like it will
outperform further down the road in this environment, with
commodities fairly stable," Bradley said.
The Canadian dollar firmed early in the session following
news that U.S. claims for unemployment benefits dropped below
the key 400,000 level for the first time since early April,
pointing to some improvement in the U.S. labor market.
But it softened as North American stocks weakened and bonds
gained on mounting concerns about a U.S. debt default and
separate debt concerns in Europe. [MKTS/GLOB]
The stalemate in Washington over lifting the debt ceiling
by an August 2 deadline is increasing the possibility of a U.S.
credit rating downgrade and has raised the prospect that the
government of the world's leading economy will run out of money
to pay its bills. [nN1E76R004]
While the Canadian dollar has struggled to regain 3-1/2
year highs reached early in the weak as investors focus on its
close ties to the struggling U.S. economy, Bradley said
weakness has generally been countered by central bank appetite
"Any time the Canada dollar weakens off it always seems to
be met by strong interest to buy it from these central bank
types," Bradley said. "The central banks have made the market
aware they are diversifying out of dollar and euro and into the
Canada dollar, into the Aussie."
The Canadian dollar CAD=D4 closed at C$0.9516 to the U.S.
dollar, or $1.0509, down from Wednesday's North American
session close at C$0.9489 to the U.S. dollar, or $1.0539.
Looking ahead, markets will be eyeing GDP figures on both
sides of the border on Friday.
Canadian bond prices were mixed, though the uneven tone in
stock markets throughout the session provided some support.
The two-year Canadian government bond CA2YT=RR was down
1.5 Canadian cents to yield 1.48 percent. The 10-year bond
CA10YT=RR rose 2 Canadian cents to yield 2.876 percent.
(Editing by Jeffrey Hodgson)