C$ slides on post U.S. election fiscal worries

Wed Nov 7, 2012 1:43pm EST
 

By Solarina Ho

TORONTO (Reuters) - The Canadian dollar weakened toward parity with the greenback on Wednesday as gains made overnight following U.S. President Barack Obama's re-election gave way to concerns about brewing fiscal problems in the United States and Europe.

Obama defeated Republican challenger Mitt Romney on Tuesday after a grueling presidential race, while Obama's fellow Democrats retained control of the Senate and Republicans kept their majority in the House of Representatives.

The results signaled no dramatic shift in U.S. economic policies. But investors, worried about the looming U.S. "fiscal cliff", sought safety in assets considered less risky than the Canadian dollar.

In the "fiscal cliff" scenario, a $600 billion package of tax increases and spending cuts is scheduled to take effect automatically at the end of 2012, likely driving the economy into recession, unless the White House and Congress reach a deal to avert it.

The prospect of the United States failing to draw back from returning to recession drove stock markets down sharply on Wednesday.

"The steep slide in equity prices tells the story for risk assets in general and that includes the Canadian dollar. So the weakness in the (Canadian dollar) is pretty much following on that trend," said Greg Moore, FX strategist at TD Securities.

"We're basically in the same place we were before the election. The division is still there. Basically the market sense would be that negotiations might be just as difficult as they were before the election."

Around noon, the Canadian dollar slipped to C$0.9971 to the U.S. dollar, or $1.0029, weaker than its North American finish on Tuesday at C$0.9918, or $1.0083. It was also underperforming against most other major currencies.   Continued...