July 21, 2011 / 12:38 PM / in 9 years

Loonie touches 3.5 year high on euro zone relief

TORONTO (Reuters) - The Canadian dollar finished higher against the greenback on Thursday, pushed up by news that euro zone leaders had agreed to give their financial rescue fund sweeping new powers to help Greece and prevent market instability in the region from spreading.

Canadian one hundred dollar bills are displayed in Toronto, October 22, 2008. REUTERS/Mark Blinch

The currency climbed to a more than 3-1/2 year high early in the day after the draft conclusions from the summit emerged. It rose as high as C$0.9425 to the U.S. dollar, or $1.0610, which analysts said was within striking distance of the modern-day high of $1.10 that the Canadian dollar hit in November 2007.

At an emergency summit, leaders of the 17-nation currency euro zone bloc agreed to ease lending terms to Greece, Ireland and Portugal, while private investors would voluntarily swap their Greek bonds for longer maturities at lower interest rates.

“In a nutshell, they delivered what they had to, to try and solve some of the problems in the euro zone and that really sent risk higher today, and with that the Canadian dollar continued its solid run higher,” said Steve Butler, director of foreign exchange trading at Scotia Capital.

“You can’t really argue with the fact that the Canadian dollar still looks quite strong and the fundamentals are quite good and obviously we heard a reasonably positive sentiment from (Bank of Canada Governor) Mr. (Mark) Carney yesterday ... All that put together a pretty positive story for the Canadian dollar.”

The currency retreated a bit as the day progressed and finished the session at C$0.9454 to the U.S. dollar, or $1.0578, up from Wednesday’s North American finish of C$0.9474 to the U.S. dollar, or $1.0555.

Market perceptions of a confident tone in Bank of Canada statements earlier this week helped spark a move up in the Canadian dollar, and a Reuters poll showed most of Canada’s primary dealers now expect the central bank to raise interest rates in September or October.

Adam Cole, global head of FX strategy at RBC Capital Markets in London, said that after the currency broke the 2011 high on Thursday, there wasn’t much technically in the way of returning to 2007 levels.

“But to get down there it will require markets to continue to take this positive stance on risk that they have been doing today,” he said.

Strength in the equity markets and gains in U.S. crude prices also helped buoy the commodity-linked currency on Thursday.

Inflation and retail sales data on Friday will provide the market with further direction.

Canadian government bond prices were mostly lower across the curve, tracking U.S. Treasury prices and reflecting investors returning appetite for risk. <US/>

The two-year bond was down 6 Canadian cents to yield 1.553 percent, while the 10-year bond gave back 49 Canadian cents to yield 3.003 percent.

Additional reporting by Claire Sibonney; editing by Peter Galloway

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