TORONTO: Canada's dollar strengthened against the greenback on Monday, touching its strongest level in more than a week as optimism US lawmakers would find a resolution to its fiscal crunch helped lift riskier assets.
The currency has been tracking equity markets, which recovered some of its sharp losses last week amid signs the United States will avert the $600 billion in automatic tax increases and spending cuts set to kick in in January that could send the economy back into recession.
"I think there is optimism in the market that the fiscal cliff negotiations are proceeding well. So that's provided a lift to markets," said Camilla Sutton, chief currency strategist at Scotiabank.
The commodities-linked Canadian dollar was also helped by firmer commodity prices, with oil, gold and copper all rising partly on US budget hopes.
At 8:18 a.m. (1318 GMT), the Canadian dollar was trading at C$0.9984 to the US dollar, or $1.0016, firmer than Friday's North American finished at C$1.0010, or 99.90 US cents.
The currency was seen trading between C$0.9939, which is a 100-day moving average, and C$1.0018, said Sutton.
The currency's performance was somewhat mixed against its counterparts.
It was stronger than the euro, but was underperforming its fellow resource-linked currencies, the Australian and New Zealand dollars.
Looking ahead this week, US Federal Reserve Chairman Ben Bernanke is set to speak on Tuesday, which could turn market focus toward Fed policy.
"I think over the last couple of weeks, the markets have had tunnel vision on fiscal cliff issues," said Sutton.
"If the market sentiment is shifting for the fiscal cliff, I think what it does is opens the opportunity for things like Fed policy, which is US dollar bearish, to come to the forefront."
Trading is expected slow as the week progresses as well, with the US celebrating Thanksgiving on Thursday.
Prices for Canadian government debt were lower across the curve, with the two-year bond shedding 3 Canadian cent to yield 1.084 percent and the benchmark 10-year bond falling 23 Canadian cents to yield 1.720 percent.
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