The Canadian dollar was lower Monday as traders avoided riskier assets such as resource-based currencies, including the loonie, ahead of Tuesday’s U.S. presidential election.
The loonie fell 0.11 of a cent to $1.0033 (U.S.) as traders also took in a report from Statistics Canada that the value of building permits issued in September fell 13.2 per cent to $6.5-billion (Canadian) after a jump of 9.5 per cent in August. The decline was mainly due to a 30.8 per cent drop in the non-residential sector.
The election appears to be shaping up to be a cliff-hanger, though most opinion polls indicate that President Barack Obama may have the edge over Mitt Romney in crucial swing states.
“It truly looks like a dead heat at this stage,” observed Mark Chandler, head of Canadian FIC Strategy at RBC Dominion Securities.
After the election, attention will turn to dealing with the looming fiscal cliff facing the U.S. economy.
The fiscal cliff refers to a variety of tax hikes and massive budget reductions that will come into effect at the end of December unless Republicans and Democrats can come together with an alternative budget plan. Economists warn such a shock could send the economy back into recession. International Monetary Fund chief Christine Lagarde recently warned that Canada would not escape the fallout from that.
“A split outcome is likely to create market uncertainty and a temporary period of U.S. dollar strength. However it is not a medium-term driver and January is likely to bring at least some political compromise in order to avoid the 4 per cent drag on GDP that the cliff implies,” said Scotia Capital chief currency strategist Camilla Sutton.
Commodity prices were mixed with the December crude contract up 79 cents (U.S.) at $85.65 a barrel after tumbling more than $2 on Friday.
December copper fell 1 cent to $3.47 a pound and December bullion rose $8 to $1,683.20 an ounce after a positive U.S. jobs report send the American currency higher and gold prices down more than $40 on Friday.
Renewed concerns over Greece also weighed on markets Monday as two votes in the country’s parliament this week could well determine whether the cash-strapped country stays in the euro zone.
On Wednesday, Greek legislators are expected to vote on a €13.5-billion ($17.27-billion) austerity package that is required by international creditors for the release of the next batch of the country’s bailout funds. Without the cash, Greece faces bankruptcy.
If, and when, the package of spending cuts and tax increases is passed, legislators will then have to approve the 2013 budget. That vote is penciled in for Sunday.
The prevailing view in the markets is that both measures will be approved but the margin of error is slim, given that a junior partner in the coalition government has said it will vote against the austerity bill if certain labour reforms are not made.