TORONTO (Reuters) - The Canadian dollar was flat against its U.S. counterpart on Friday as investors waited for the resumption of talks in Washington to avoid a fiscal crisis and currency players squared positions for year-end and month-end balances.
World shares sagged and the dollar climbed as U.S. President Barack Obama and lawmakers were set to have a last round of talks before a New Year’s deadline to reach a deal and avoid massive tax hikes and spending cuts that could drag the economy, and others around the world, into recession. <MKTS/GLOB>
Obama and Vice President Joe Biden will meet congressional leaders from both parties at the White House at 3.00 p.m. ET.
Commodity-linked currencies like the Canadian dollar tend to benefit when U.S. budget negotiations run smoothly, but when there are snags, investor flows go into the highly liquid U.S. dollar. <MKTS/GLOB>
“Canada is sidewise, there is not much to say when the range is 17 points. The flow in dollar-Canada is really in many respects a microcosm of the overall flow, which is a function of ‘cliff’ developments,” said Jack Spitz, managing director of foreign exchange at National Bank Financial.
“That being said, we remain cognizant of month-end as well as well as year-end rebalancing flow as well as repatriation, all of which is expected to be U.S. dollar positive. Add to the equation, thin market conditions and an overall Street that is sensitive to position squaring.”
At 7:30 a.m., the Canadian dollar stood at C$0.9951 versus the U.S. dollar, or $1.0049, barely changed from Thursday’s North American session close at C$0.9949 versus the U.S. dollar, or $1.0051.
The Canadian currency hit C$0.9959 on Thursday, its weakest level since November 28, after U.S. Senate Majority Leader Harry Reid, the top Democrat in Congress, warned a deal was unlikely before the deadline.
Canadian government bond prices were higher across the curve on the flight to safety. The two-year bond was up 2 Canadian cents, yielding 1.127 percent, while the benchmark 10-year bond rose 8 Canadian cents to yield 1.786 percent.
Reporting by Andrea Hopkins; Editing by Jeffrey Benkoe