Loonie rallies on optimism for Europe debt outlook

Mon Nov 28, 2011 4:38pm EST
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By Jennifer Kwan

TORONTO (Reuters) - The Canadian dollar rebounded on Monday from seven-week lows against its U.S. counterpart, finishing higher on investor optimism that European leaders would make progress on resolving the euro zone's debt crisis.

Canada's dollar rose to a high of C$1.0304 to the U.S. dollar, or 97.05 U.S. cents, in tandem with world stocks and commodity prices.

Key factors behind the rise included a report that suggested the International Monetary Fund was preparing a rescue plan for Italy, although an IMF spokesperson denied the report.

As well, Germany and France pushed to acquire powers to reject national budgets in the euro zone that would breach European Union rules, ahead of an EU summit on December 9.

"It was all about renewed risk appetite on the back of the developments that came out of Europe. There was some optimism they may be fixing the situation," said Matt Perrier, director of foreign exchange sales at BMO Capital Markets.

"That gave equities and risk appetite a lift across the board, and North America followed suit as we walked in, so a strong performance by equities, commodities and commodity-based currencies."

The Canadian dollar ended at C$1.0354 to the U.S. dollar, or 96.58 U.S. cents, up sharply from Friday's finish at C$1.0494 or 95.29 U.S. cents.

Camilla Sutton, chief currency strategist at Scotia Capital, said the market was experiencing a "massive retracement" from last week across currencies.   Continued...