TORONTO - The Canadian dollar closed higher Thursday as traders continued to fixate on the U.S. budget impasse that has resulted in a partial shutdown of the U.S. government.
Moreover, traders worried about an Oct. 17 deadline when the U.S. hits its debt limit, an event that could trigger severe economic disruption around the world.
The loonie rose 0.05 of a cent to 96.84 cents US. amid widespread U.S. dollar weakness.
Hopes had been high earlier in the week that Republicans and Democrats would come to a last-minute agreement that would avoid the shutdown or that the withdrawal of some services would be short-lived.
But now the worry is that the shutdown will carry on for another couple of weeks to the debt ceiling deadline.
At issue is the Affordable Health Care Act, or Obamacare.
Republican House Speaker John Boehner has made clear that curbing the health care overhaul that President Barack Obama pushed into law three years ago remains part of the price for ending the shutdown. Traders are concerned that price tag will also apply to raising the debt ceiling.
On the economic front, data showed a much sharper than expected deterioration in a key index that measures the U.S. non-manufacturing sector.
The Institute for Supply Management said its service sector index for September came in at 54.4, down from 58.6 in August and lower than the 57.5 reading that had been expected.
Another report, from the U.S. Labor Department, showed that jobless insurance claims in the U.S. were up a slight 1,000 last week to 308,000.
The release of the U.S. government's September employment report had been scheduled for Friday, but the government shutdown has postponed its release.
There was some positive economic news from the world's second-biggest economy.
China's official non-manufacturing Purchasing Managers’ Index rose to a six-month high of 55.4 in September from 53.9 in August.
The non-manufacturing PMI covers services including retail, aviation and software as well as real estate and construction.
Commodity prices were lower with November crude on the New York Mercantile Exchange off 79 cents to US$103.31 a barrel.
December copper slipped five cents to US$3.27 a pound while December gold bullion faded $3.10 to US$1,317.60 an ounce.