TORONTO (Reuters) - The Canadian dollar firmed against its U.S. counterpart on Tuesday, as commodities were boosted by renewed optimism that a Greek debt deal was near.
A range of commodity linked currencies like the Canadian dollar rallied on news Greece was close to terms on a bailout, after a Greek official said Athens was drafting a list of austerity reforms needed to clinch a new financial package.
Failure to secure the 130 billion euro ($170 billion) rescue would mean Greece faces a messy debt default that could destabilize the entire European Union.<MKTS/GLOB>
“The worst-case scenario, which is a disorderly default and Greece being cut off from the EU, no longer seems imminent,” said David Woo, head of global rates and currencies research at Bank of America Merrill Lynch. “From the market’s standpoint, at least for the time being, more orderly conditions are going to prevail.”
The Canadian dollar finished at C$0.9948 to the U.S. dollar, or $1.0052, up slightly from Monday’s finish of C$0.9955, or $1.0045.
Canada’s move against the greenback trailed the euro‘s, which hit an eight-week high at $1.3270 against the U.S. currency. <FRX/>
“People look at the Canadian dollar as basically a very low-beta U.S. dollar,” said Woo. “So when the U.S. dollar goes down the Canadian dollar is not going to go up as much against the U.S. dollar than some of the other currencies.”
Despite the Canadian currency’s rise above the 1-to-1 level with the U.S., some analysts predict it will end the year significantly weaker.
On Tuesday, Capital Economics forecast the Canadian dollar will finish the year around 92 U.S. cents, predicting more problems in the euro zone will hobble the global economy.
In central bank news, Federal Reserve Chairman Ben Bernanke renewed a pledge to prevent Europe’s crisis from damaging the U.S. economy in congressional testimony that mirrored his remarks last week.
Last month, Bernanke stirred markets when the Fed predicted interest rates would stay on hold until at least late 2014, sparking speculation there could also be another round of quantitative easing.
“We know that Mr. Bernanke has been a fan of QE and there’s always talk of could there be further influences?” said C.J. Gavsie, managing director of foreign exchange sales at BMO Capital Markets.
Gavsie said he saw the Canadian dollar staying close to current levels - likely in a range between C$0.9960 and C$1.0030 - and that a push towards Monday’s high of C$0.9930 would be unlikely without a Greek deal.
Canadian bond prices were mostly lower, with the two-year bond down four Canadian cents to yield 1.043 percent. The 10-year bond fell 60 Canadian cents to yield 2.041 percent.
Editing by Jeffrey Hodgson