Canadian dollar lower, greenback strengthens amid U.S. budget concerns | iNFOnews

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Canadian dollar lower, greenback strengthens amid U.S. budget concerns

January 03, 2013 - 5:39 AM

TORONTO - The Canadian dollar was slightly lower Thursday as relief over a last-minute deal to avert big tax hikes and spending cuts in the U.S. proved short-lived.

The commodity sensitive loonie declined 0.02 of a cent to 101.48 cents US while a strengthening U.S. dollar helped depress prices for oil and metals.

The greenback gained ground as traders realized that while the deal struck by U.S. lawmakers late Tuesday brought the country back from the so-called fiscal cliff it left unresolved several budget measures, mainly government spending cuts.

Traders worry that U.S. budget talks could pose a threat to risk appetite for months.

For one thing, while the New Year’s Eve deal settled tax rates, it only postponed automatic spending cuts to defence and domestic programs for two months. And it doesn’t include any significant deficit-cutting agreement, meaning the country still doesn’t have a long-term plan on how to curb spending.

On top of that, the U.S. government also faces what are likely to be tough negotiations over raising the country’s debt limit in February.

"U.S. budget optimism has shifted quickly to pessimism as most begin to dread the next two months of political brinkmanship around the debt ceiling and spending cuts," said Scotia Capital chief currency strategist Camilla Sutton.

"Accordingly, markets are generally retracing some of yesterday’s moves."

Worries about further political wrangling pushed the U.S. currency higher, which helped depress commodity prices, which had also racked up solid gains Wednesday.

That is because a stronger greenback makes it more expensive for holders of other currencies to buy oil and metals, which are dollar-denominated.

The February crude contract on the New York Mercantile Exchange gave back 33 cents to US$92.79 a barrel.

March copper dipped a penny to US$3.72 a pound while February gold bullion lost $12.30 to US$1,676.50 an ounce.

On the economic front, there was positive jobs data a day ahead of the release of the U.S. non-farm payrolls report.

Payroll firm ADP reported that the U.S. private sector created 215,000 jobs last month, well above the 140,000 that had been expected. Economists forecast that Friday's U.S. government report would show the American economy cranked out 150,000 jobs.

Traders also looked ahead to the release Friday of the Canadian employment report for December. Economists forecast only about 5,000 jobs were created last month. But that would follow a strong November where the economy cranked out 59,000 jobs.

News from © The Canadian Press, 2013
The Canadian Press

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