November 8, 2011 / 9:40 PM / in 6 years

Canadian dollar boosted by Berlusconi exit plan

TORONTO (Reuters) - The Canadian dollar edged higher against the U.S. currency on Tuesday, taking its cue from rising global markets after Italy’s Prime Minister Silvio Berlusconi confirmed he will resign.

Berlusconi said he would quit after suffering a humiliating setback in parliament that showed a party revolt had stripped him of a majority.

The news sent global equities, commodities and the euro higher as Berlusconi’s exit could ease the passage of unpopular austerity measures needed to reduce debt and lower Italian government bond yields.

“There seems to be some relief about the European credit situation now that it looks like Berlusconi will step down,” said Sal Guatieri, senior economist at BMO Capital Market.

“There’s a sense that Italy might push through more aggressive budget austerity measures.”

Investors have been concerned that Italy, the euro zone’s third largest economy, could be facing a crisis similar to the one that forced Greece to seek a bailout.

The Berlusconi-induced bounce overshadowed news that Canada pushed back its promised date to balance the budget by a year as a global economic slowdown takes its toll on a domestic economy that has outperformed most rivals.

The Canadian government and the Bank of Canada also agreed to renew without change the central bank’s five-year mandate to target a 2 percent overall inflation rate.

David Tulk, chief Canada macro strategist at TD Securities, said he did not expect the announcements to have a discernible impact on the Canadian currency, especially “against a world where we’re very much following headlines out of Europe right now.”

The Canadian dollar finished at C$1.0082 versus the greenback, or 99.19 U.S. cents, up from Monday’s North American session finish at C$1.0127 versus the U.S. dollar, or 98.75 U.S. cents.

Canadian government debt prices fell as the modestly improving risk environment reduced the appeal of safe-haven bonds.

The two-year bond fell 5 Canadian cents to yield 0.980 percent, while the 10-year bond sank 28 Canadian cents to yield 2.190 percent.

“It all goes back to Europe. It’s the main factor driving markets,” said BMO’s Guatieri.

Editing by Jeffrey Hodgson

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