Canadian dollar slips, Fed chair warns of fiscal cliff consequences

TORONTO – The Canadian dollar closed lower Tuesday while the greenback rose in value as European Union officials made another stab at reaching an agreement on releasing the latest batch of loans to keep Greece afloat.

Also on Tuesday, U.S. Federal Reserve chairman Ben Bernanke offered stark reminders of the consequences of failing to deal with a looming fiscal crisis.

The loonie closed down 0.07 of a cent to 100.27 cents US after running ahead almost half a cent Monday.

Greece is still waiting for a €31.5-billion loan, the latest instalment of bailout money that is keeping the country afloat. The loan was due to have been signed off last week but a meeting of the finance ministers from the 17 European Union countries that use the euro failed to agree on how to get Greece’s bailout program back on track.

Ireland’s finance minister says a main point of contention at the meeting in Brussels is whether to give Greece an extra two years to get to a point where it can raise its own funds, as well as how to finance that extension.

Meanwhile, Bernanke warned during a speech to the Economic Club of New York that uncertainty about heading off steep spending cuts and tax increases at the first of the year is holding back spending and troubling investors.

Going over the so-called fiscal cliff at the start of the year would deliver a severe shock to the economy, likely triggering a recession that would drag down economies around the world.

He also made it clear that the Fed doesn’t have the tools to offset the damage arising from a failure to offset the impact of the fiscal cliff.

Bernanke added that worries about another round of negotiations on raising the federal debt limit in February is also contributing to uncertainty.

Traders also focused on Moody’s Investor Services’ downgrade of France’s AAA credit rating. Moody’s cited concerns over its prospects for economic growth and its exposure to Europe’s financial crisis. S&P had also downgraded Europe’s second-biggest economy in January.

Commodity prices were mixed following big gains on Monday with the January crude contract on the New York Mercantile Exchange giving back some of the strong gains registered over the past two sessions, down $2.53 cents to US$86.75 a barrel. Prices had run up sharply on worries that fighting between Israel and Hamas could spread, jeopardizing shipments of oil from the Mideast.

December copper was down a cent to US$3.52 a pound following an eight-cent jump Monday.

December bullion was down $10.80 to US$1,723.60 an ounce.