Loonie at five-week low as U.S. budget talks struggle

Andrea Hopkins, Reuters

, Last Updated: 4:55 PM ET

TORONTO - The Canadian dollar ended slightly weaker against its U.S. counterpart on Friday as the White House and U.S. lawmakers made a late attempt to avert the “fiscal cliff” and investors choose safe-havens to wait out the negotiations.

World stocks slipped and the U.S. dollar gained as the deadline looms for reaching a budget deal to avert massive tax increases and spending cuts that could drag the U.S. economy, the destination for most Canadian exports, into recession.

President Barack Obama was not planning to make a new offer to avert the tax hikes and spending cuts that loom on Jan. 1 at a White House meeting with congressional leaders on Friday, a source familiar with the meeting said.

At the meeting, Obama was set to ask lawmakers to hold a vote on a plan that would allow taxes to rise on those who earn $250,000 and up, and that would extend unemployment insurance benefits, according to the source.

“We saw some hint of progress on the fiscal cliff negotiations, a mini deal, and for everyone that is a disappointment,” said Adam Button, currency analyst at ForexLive in Montreal.

Commodity-linked currencies like the Canadian dollar tend to benefit when U.S. budget negotiations run smoothly, but when there are snags, investor flows go into the highly liquid U.S. dollar. The Canadian dollar ended the North American session at C$0.9965 versus the U.S. dollar, or $1.0035, weaker than Thursday’s North American session close at C$0.9949 versus the U.S. dollar, or $1.0051.

Earlier in the session the Canadian currency hit C$0.9969, its weakest level since Nov. 23, but seemed bound by a tight range approaching parity with the U.S. dollar.

“The Canadian dollar is once again just above parity and in no rush to go anywhere, which is fitting - we end the year very close to parity because that has been the story day after day in 2012,” Button said.

He warned, however, that the final trading day of the year on Monday may bring some volatility as investors square positions.

“Historically, this holiday time is very quiet, but we’ve had very large moves in the yen and euro, so I would rule out nothing on Monday in terms of substantial moves.

Desks are thinly staffed but that hasn’t kept markets from moving,” he said. “And in this kind of environment, you can’t look for moves to make sense - you just have to go with momentum.”

Canadian government bond prices were higher across the curve on the flight to safety.

The two-year bond was up 1 Canadian cent, yielding 1.132 percent, while the benchmark 10-year bond rose 18 Canadian cents to yield 1.774 percent.


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