TORONTO - The Canadian dollar closed below parity with the U.S. dollar Friday on worries about the fallout from a string of tax hikes and deep spending cuts set to automatically go into effect in the U.S. in the new year.
The loonie was down 0.09 of a cent at 99.87 cents US as worries about the knock-on effects from those hikes and cuts sent traders to the perceived safe haven of U.S. Treasuries.
The fiscal cliff label refers to a string of tax increases and steep spending cuts aimed at cutting the deficit which are set to take effect at the first of the year. If they are allowed to take full effect, the cuts and tax increases will total about at least half a trillion dollars and take a big chunk out of GDP, in 2013. Failure to come up with a compromise would likely tip the U.S. back into recession and drag down other economies with it.
Bank of Canada governor Mark Carney said Thursday that the fiscal cliff is the most imminent threat facing the Canadian economy.
There was no comfort to be found after President Barack Obama said Friday afternoon that he is inviting congressional and business leaders to a meeting next week for talks aimed at finding a compromise.
But he added he would stick to his pledge to seek higher taxes from the wealthy as part of his plan to reduce the U.S. government’s budget deficit. That position is opposed by many Republicans in Congress.
Commodity prices were mixed amid worries about demand concerns and the higher greenback.
The December crude contract on the New York Mercantile Exchange shook off early losses after encouraging U.S. consumer data was released mid-morning, rising 98 cents to US$86.07 a barrel.
The University of Michigan's consumer sentiment survey index came in at 84.9 in November, the highest reading since July 2007, from a final October reading of 82.6, reflecting lower gasoline prices and the improvement in housing and labour market data. Economists had expected a decline to 81.5 because of concerns over the fiscal cliff and the effects of superstorm Sandy.
Copper, viewed as an economic barometer as the metal is used in so many applications, dropped two cents to US$3.45 a pound.
December gold bullion rose $4.90 to US$1,730.90 an ounce.
Traders also digested positive Chinese economic data. Auto sales, consumer spending and factory output in the world's second-largest economy all improved in October.
The European debt crisis also kept traders on edge as cash-strapped Greece said it would issue unusually short-term debt on Tuesday in the hope of raising enough money to make a key bond repayment days later.
It will issue €2.1 billion in four-week treasury bills and €1 billion in 13-week bills.
Greece is not expected to get its next batch of international rescue loans by Nov. 16, when it has to roll over €5 billion in three-month treasury bills.
Meanwhile, the Greek parliament is to vote on a new budget containing a fresh slew of austerity measures on Sunday.