U.S. Markets closed

CANADA FX DEBT-C$ strengthens but move limited by U.S. stand-off

* C$ at C$1.0326 vs US$, or 96.84 U.S. cents

* U.S. government shutdown enters third day

* Bond prices mixed across curve

By Solarina Ho

TORONTO, Oct 3 (Reuters) - The Canadian dollar strengthened

modestly against the greenback on Thursday, though the political

stalemate in Washington kept it in its recent trading band.

Lawmakers in the United States appeared no closer to

resolving the budget deadlock that has resulted in a partial

shutdown of the federal government, which was in its third day.

Investors were concerned about what impact the impasse 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.

U.S. employment data, usually a key market mover, was due

out on Friday, but with the shutdown in effect the figures are

not expected to be released until the budget impasse is


"The Canadian dollar, much like most global currencies, is

playing a little bit of 'Waiting for Godot' if you will, in the

sense that if Godot is the U.S. nonfarm payrolls data," said

Brad Schruder, director of foreign exchange at BMO Capital


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.

"We'll call it the eye of the storm," said Jack Spitz,

managing director of foreign exchange at National Bank Financial

in Toronto. "There's plenty of volatility around us, but it

seems to be having a self-mitigating impact on dollar-Canada


The Canadian dollar closed at C$1.0326, or 96.84

U.S. cents, marginally stronger than Wednesday's close of

C$1.0332, or 96.79 U.S. cents.

The currency is expected to trade between C$1.0320 and

C$1.0350 for the balance of the week, said Schruder, adding that

Ivey September manufacturing data for Canada on Friday could

give the currency a modest push.

In the longer term, the Canadian dollar is expected to lose

ground against its U.S. counterpart in coming months, though

economists forecast the currency will be more resilient than

previously anticipated, a Reuters poll released on Thursday


The median forecast of more than 50 economists and currency

strategists was for the Canadian dollar to trade at C$1.030 to

the U.S. dollar, or 97.09 U.S. cents, in a month's time.

Those polled expected the loonie to weaken to C$1.040 in the

next three months, and saw it holding at that level in six and

12 months from now.

The U.S. government shutdown this week has cast uncertainty

on two big points of focus for markets: the looming deadline to

raise the debt ceiling and its influence on central bank policy.

The next big political battle lawmakers face is raising the

$16.7 trillion U.S. debt ceiling by mid-October. Failure to do

so would force the United States to default on some payment

obligations, and the inability of U.S. politicians to end the

government shutdown has stoked concerns about their ability to

come to an agreement on debt.

While the political wrangling has shifted some attention

away from monetary policy, analysts were trying to gauge what

effect a lengthy shutdown might have on the U.S. Federal

Reserve's efforts to prop up the economy.

The central bank surprised markets last month by maintaining

asset buying in its stimulus program at $85 billion a month.

Analysts were speculating the fiscal drag on the economy spurred

by the shutdown could prevent the Fed from reducing those bond

purchases as soon as had been expected.

Prices for Canadian government bonds were higher across the

maturity curve. The two-year bond rose 1.5 Canadian

cents to yield 1.180 percent, while the benchmark 10-year bond

gained 6 Canadian cents to yield 2.541 percent.