December 27, 2012 / 2:12 PM / in 5 years

Canadian dollar flat and quiet as investors watch U.S. talks

Canadian currency in the form of twenty dollar bills are displayed in this posed photograph in Toronto, October 22, 2008. REUTERS/Mark Blinch

TORONTO (Reuters) - The Canadian dollar was largely unchanged against its U.S. counterpart in quiet trading on Thursday as investors wait for developments in the U.S. budget talks to avert a fiscal cliff and square positions ahead of the year-end.

Markets have been in limbo since last week when President Barack Obama and U.S. lawmakers suspended talks until after Christmas on avoiding $600 billion of spending cuts and tax increases that some economists say threaten to send the economy back into recession.

“We’re starting off very quietly as we did yesterday,” said Matt Perrier, a director of foreign exchange sales at BMO Capital Markets.

“We may see some year-end things that corporates need to get done, that will hopefully give us some movement, and we’ve also got the whole fiscal cliff situation coming down to the wire, so there is potential for things to move, we’ll just have to wait and see.”

At 8:43 a.m. (1343 GMT), the Canadian dollar stood at C$0.9921 versus the U.S. dollar, or $1.0080, just slightly weaker than Monday’s North American session close at C$0.9913 versus the U.S. dollar, or $1.0088.

North American markets were closed on December 25 and most Canadian markets remained shut on Wednesday for Boxing Day, so Thursday was the first day of normal trade since markets closed on Monday, Christmas Eve.

Efforts to prevent the U.S. economy from going over a “fiscal cliff” stirred back to life on Wednesday with less than a week to go before potentially disastrous tax hikes and spending cuts kick in at the New Year.

In a sign that there may be a way through deadlock in Congress, Republican House of Representatives Speaker John Boehner urged the Democrat-controlled Senate to act to pull back from the cliff and offered to at least consider any bill the upper chamber produced.

President Barack Obama will try to revive budget crisis talks - which stalled last week - when he returns to Washington on Thursday after cutting short his Christmas holiday in Hawaii.

BMO’s Perrier said he doesn’t expect much movement in the Canadian dollar as 2012 draws to a close, given the tight range it has traded in recent weeks.

“It will probably close around these levels, in the C$0.9850 and C$0.9950 area. There is certainly some uncertainty with respect to what happens in the U.S. - if we get a fiscal cliff deal or we don’t see a fiscal cliff deal - that could create some movement into tomorrow or Monday,” he said.

“But given the price action in the last couple of weeks, I’d think we’ll probably close (2012) around where we are now.”

Canadian government bond prices edged lower along the longer end of the curve. The two-year bond was down 4.5 Canadian cents, yielding 1.147 percent, while the benchmark 10-year bond fell 3 Canadian cents to yield 1.822 percent.

Editing by Chizu Nomiyama

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