Loonie higher as US leaders reach agreement over budget spending cuts

By David Friend, The Canadian Press

TORONTO – The Canadian dollar gained nearly a penny against the American dollar Wednesday as the U.S. avoided massive tax increases and spending cuts that had threatened a renewed recession south of the border.

The loonie moved up 0.99 of a cent to 101.50 cents US.

The U.S. deal, approved by the House of Representatives just before midnight Tuesday, left several issues unresolved and it was unclear how long markets would be lifted by the agreement.

The bill that Congress approved allows for higher taxes on incomes over $400,000 for individuals and $450,000 for couples, a victory for President Barack Obama. Earnings above those amounts would be taxed at a rate of 39.6 per cent, up from 35 per cent. However, earners below that level, were spared an increase.

The bill also delayed for two months $109 billion worth of across-the-board spending cuts set to start taking affect this week.

Though fiscal cliff fears have eased, investors still have a host of issues to worry about — not least the prospect of more debates over unresolved longer-term U.S. budget issues.

“The fiscal cliff pact has stock markets and commodities higher; oil is also much stronger,” said Rahim Madhavji, an analyst at Knightsbridge Foreign Exchange in a note.

“The loonie is also higher as a result of the risk-on bias. The focus now shifts to the end of February where the next battle will be over raising the U.S. debt ceiling.”

In commodities, oil prices rose with the February contract on the New York Mercantile Exchange ahead $1.30 to US$93.12 a barrel.

Gold prices picked up with the March bullion contract moving ahead $13 to US$1,688.80 an ounce. Copper prices for the March contract were up 8.4 cents to US$3.74 a pound.

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