TORONTO – The Canadian dollar closed lower Tuesday as traders digested news that the federal budget won’t be balanced until 2016-17, a year later than previously forecast.
The loonie was off 0.06 of a cent at 99.81 cents US as federal Finance Minister Jim Flaherty delivered a fiscal update that said the federal deficit will rise by about $5 billion to $26 billion this year.
He said the key problem is a weak global economy which has depressed prices for commodities Canada sells to the world. In turn, this erodes government tax revenues.
The loonie also moved lower amid wrangling over dealing with more bailout money for Greece and worries about the approaching “fiscal cliff” in the United States.
The dollar has been under pressure recently as nervous traders have bought into the safe-haven status of U.S. Treasuries and avoided riskier assets such as resource-based currencies.
The looming end-of-year deadline over the expiration of Bush-era tax cuts and the automatic launch of massive spending cuts at the end of the year continued to cast a pall over markets. Economists reckon that such a scenario, the so-called fiscal cliff, would take a big chunk out of economic growth, likely pushing the U.S. back into recession and taking other economies down with it.
Meanwhile, financial markets also focused on Greece after ministers from the 17 countries that use the euro failed to agree on how to put Greece’s bailout program back on track.
The EU and the International Monetary Fund disagree on the timeline for bringing Greece’s debts down to a manageable level. The European Commission, the EU’s executive arm, wants to give Greece until 2022 to reduce its debt to 120 per cent of gross domestic product. But the IMF wants to stick to the original deadline of 2020.
Giving Greece the extra time means the country would require about €33 billion in extra funding.
Finance ministers will meet Nov. 20 to decide where that extra funding will come from.
Meanwhile, Greece raised €4.06 billion from the sale of short-term treasury bills Tuesday. With the disbursement of a massive €31.5-billion instalment from Greece’s international bailout long delayed, Athens would have found it impossible to repay a €5-billion treasury bill maturing on Friday, the day on which Prime Minister Antonis Samaras has said Greece would run out of money.
Commodities were mixed as crude on the New York Mercantile Exchange lost 19 cents at US$85.38 a barrel. December copper shook off early losses to close unchanged at US$3.47 a pound. And December gold bullion edged $6.10 lower to US$1,724.80 an ounce.