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Canadian Dollar Gains on Optimism U.S. May Reach Deal

The Canadian dollar gained for the first time in four days versus its U.S. counterpart as U.S. President Barack Obama said congressional leaders were “close” to a deficit-reduction deal to avoid tipping the nation’s largest trading partner into recession.

Canada’s currency rose against the majority of its 16 most-traded peers as Obama said a deal to avert a recession from legislated austerity measures was “within sight.” The currency had the biggest intraday jump in a month after Bloomberg News reported a tentative accord that would allow taxes to go up on families earning more than $450,000 a year and extend unemployment benefits for one year.

“It looks increasingly like there’s a deal that’s on the table,” David Doyle, a strategist at Macquarie Capital Markets, said by phone from Toronto. “Doubtful it gets voted on by both houses before the day is out, but I think it’ll be constructive that the deal has been agreed to, and I think you’ve seen that across the board, with most risk assets responding positively.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, appreciated 0.5 percent to 99.21 cents per U.S. dollar at 5:11 p.m. in Toronto, its largest intraday gain since Nov. 23. One Canadian dollar buys $1.0080.

The currency advanced 2.9 percent against the U.S. dollar this year. It will strengthen to 97 cents per U.S. dollar by the second quarter of 2013, according to the median estimate of 41 economists in a Bloomberg survey.

Crude Oil

Crude oil, Canada’s largest export, climbed 1 percent to $91.74 a barrel in New York, and the Standard & Poor’s 500 Index rose 1.7 percent.

Canada’s benchmark 10-year bonds fell for the first time in three days, pushing the yield up three basis points, or 0.03 percentage point, to 1.8 percent. The 2.75 percent security maturing in June 2022 declined 26 cents to C$108.22.

The U.S. economy faces a recession in the first half of 2013 if lawmakers are unable to avoid the tax and spending changes, according to the Congressional Budget Office.

“I don’t think the market is sitting there going, we absolutely think they’re going to get this sorted out by midnight tonight, but I think the belief is if it’s not done by midnight tonight it will be done very soon after, very early in January,” said Shane Enright, executive director at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, by phone from Toronto.

The Canadian dollar rose earlier after data showed China’s manufacturers unexpectedly expanded at the fastest pace in 19 months in December, boosting optimism that a recovery in the world’s second-biggest economy is gaining traction.

The final reading of a Purchasing Managers’ Index was 51.5 in December, according to a statement from HSBC Holdings Plc and Markit Economics today. That compares with the 50.9 preliminary reading on Dec. 14 and a final 50.5 in November. A level above 50 indicates expansion.

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