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Canadian dollar declines amid fiscal cliff worries, mixed commodities

Malcolm Morrison, The Canadian Press

Loonies are shown in Calgary, Alta., July 19, 2012. THE CANADIAN PRESS/Jeff McIntosh
Loonies are shown in Calgary, Alta., July 19, 2012. THE CANADIAN PRESS/Jeff McIntosh

TORONTO - The Canadian dollar extended a string of losses Wednesday as worries increased about whether there can be a quick resolution to the looming U.S. "fiscal cliff."

The currency was down 0.19 of a cent at 99.62 cents US.

Canadian dollar losses accelerated after an early afternoon news conference by President Barack Obama.

Hopes for a deal on extending billions of dollars in tax breaks and spending faded as he insisted that higher tax payments from wealthy Americans would have to be part of any deal, a point of view strongly opposed by congressional Republicans.

The loonie has lost about 1.2 U.S. cents over the past week after the results of the U.S. election essentially left the political landscape unchanged. That heightened pessimism that lawmakers will be able to come together and arrange a compromise to avoid the cliff at the start of the year.

That’s when a series of tax cuts from the Bush era expire, which would raise tax bills for almost all Americans. As well, huge spending cuts are automatically set to take effect, which would take a huge chunk out of U.S. gross domestic product and likely push the economy back into recession, taking other countries’ economies with it.

Such a scenario is bad news for a resource-based currency like Canada's as slowing economies will slash demand for oil and metals.

Commodity prices were mixed with December crude on the New York Mercantile Exchange up 94 cents to US$86.32 a barrel. Prices found support on worries about supply disruptions from the Mideast after Israel killed the commander of the Hamas military wing in one of some 20 airstrikes on the Gaza Strip Wednesday.

December copper was off two cents at US$3.45 a pound while December bullion gained $5.30 to US$1,730.10 an ounce.

It was a light day on the economic calendar with no releases from Canada.

In the U.S., retail sales for October fell 0.3 per cent as auto sales declined. Economists had expected a 0.2 per cent decline but superstorm Sandy was possibly a factor in the reading.

Traders also took in remarks from Fed vice-chairman Janet Yellen, who said Tuesday the central bank should tie interest rate hikes to specific unemployment and inflation levels. The Fed has already committed to keeping rates near zero until mid-2015.