November 28, 2011 / 2:44 PM / 6 years ago

Loonie rebounds on Europe policy hope

3 Min Read

TORONTO (Reuters) - The Canadian dollar rebounded from a seven-week low against its U.S. counterpart on Monday as the euro and world stocks rallied on hopes that European leaders would make progress on resolving the credit crisis.

The market's mood was initially lifted by an unsourced report in Italian daily La Stampa that suggested the International Monetary Fund was preparing a rescue plan for Italy worth up to 600 billion euros. This was later dismissed by an IMF spokesperson.

It was enough to spark a mini-rally ahead of a European Union summit next week where market observers hope details will emerge on how policymakers expect to resolve the debt crisis.

"We're just having a massive retracement from last week across currencies," said Camilla Sutton, chief currency strategist at Scotia Capital.

"The culmination of strong Black Friday sales in the U.S. combined with the hope that Europe is coming toward a new plan is temporarily providing some relief to markets."

"Black Friday" typically marks the beginning of the U.S. holiday shopping season, following a U.S. market holiday on Thursday for Thanksgiving.

At 9:13 a.m., the Canadian dollar was at C$1.0313 to the U.S. dollar, or 96.96 U.S. cents, sharply higher from Friday's finish at C$1.0494 or 95.29 U.S. cents.

Stronger prices for oil, a key Canadian export, and gold also helped to lift the Canadian dollar.

"It's a reflection of general risk appetite. The commodity currencies are doing very well," said Sutton.

After clawing back from the C$1.05 levels breached on Friday, Sutton said the next significant resistance levels for the Canadian dollar are seen at C$1.0280-C$1.0380 against the U.S. currency.

Canadian government bond prices were lower across the curve, following the trend in the United States that saw Treasuries slip on Monday as optimism over the outcome of the euro zone credit crisis weakened demand for safe-haven government debt.

Canada's two-year bond eased 12 Canadian cents to yield 1.016 percent, while the 10-year bond was down 87 Canadian cents to yield 2.209 percent.

Editing by James Dalgleish

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