The Canadian dollar strengthened against its U.S. counterpart today following the collapse of talks over the weekend in the U.S. Congress to come to an agreement on a deal to raise the U.S. debt ceiling. Concerns of a U.S. default weighed heavily on the greenback as the August 2nd deadline looms, bringing the U.S. economy closer to becoming bankrupt.
The breakdown in U.S. budget talks pushed investors to perceived safe-haven currencies such as the Swiss Franc and to commodities such as gold. The Dollar hit a hit a record low versus the Swiss franc today.
Usually, crisis in the global financial economies pushes investors to investing the US Dollar as opposed the Canadian, since the loonie is perceived as a riskier asset. Commodity-linked currencies normally suffer during times of uncertainty.
However, in this case, the Canadian Dollar bucked the trend and benefitted along with the safe havens. USDCAD fell to a low of 0.9453 from the early day high of 0.9523 at 13:30 GMT.
“People more and more are seeing Canada as a place where you can put money more safely,” said Charles St-Arnaud, Canadian economist and currency strategist with Nomura Securities International in New York.
“It’s mainly a flight to safety given what’s going on in the United States … people look at the second best solution. They want a triple-A government that has a decent sized bond market.”
Most investors expect a U.S. deal will be reached in the so-called “eleventh hour” before the Aug. 2 deadline in order to avert default. But despite a deal being reached to cut the deficit, the issue will remain over “how” to go about doing it.