TORONTO: Canada's dollar climbed against its US counterpart on Monday, recovering from a four-and-a-half month low hit in the previous session, as Greek polls showed growing support for pro-bailout parties.
Global share markets recovered overnight from steep falls last week, when investors fled to the safety of the US dollar on mounting concerns about Greece, Spain's banking sector, and a lack of immediate policy responses from European leaders.
"The positive news out of Europe caused a bit of demand for the Canadian dollar and other risk-based assets," said Blake Jespersen, a managing director of foreign exchange sales at BMO Capital Markets.
Greek opinion polls pointed to gains for the conservative New Democracy party in the June 17 election, making it more likely the next Greek government will stick to bailout terms agreed with the European Union and the International Monetary Fund, enabling Greece to stay in the euro.
"The pro-bailout party is gaining traction and is leading in the polls so the market viewed that as a positive," said Jespersen.
The Canadian dollar ended at C$1.0238 versus the US dollar, or 97.68 US cents, stronger than Friday's North American session close at C$1.0295 against the US dollar, or 97.13 US cents.
The Canadian dollar outperformed many of its G10 currency peers, including the euro and Japanese yen. It underperformed its commodity-linked cousins, the New Zealand and Australian dollars.
"The market has decided to stop catastrophizing Greece ... and the market is taking that as a catalyst perhaps to start pulling back on its extreme long (US) dollar positioning," said Jack Spitz, managing director of foreign exchange at National Bank Financial.
But analysts said trading was subdued because of the long US holiday weekend, with US financial markets closed on Monday for the Memorial Day holiday.
Later in the week US employment and housing data, Canadian growth numbers, and an Irish vote on the European Union's new fiscal treaty will provide further direction.
"It's been a very very quiet day and very little flow to speak of given the US holiday. So a lot of the large clients have chosen to stay out of the market today given the thin liquidity," said BMO's Jespersen.
Jespersen sees the currency stuck in a range of about C$1.0220 to C$1.03 against the greenback.
Canadian government bond prices edged lower across the curve with the two-year bond down 4 Canadian cents to yield 1.093 percent, while the benchmark 10-year bond was off by 40 Canadian cents to yield 1.843 percent.
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