Global stocks rallied for a third straight day and oil prices surged after the ECB renewed offers to aid ailing regional banks. A lackluster US jobs report that still managed to ease fears about a new recession also provided support.
The improved appetite for risk helped commodity-linked currencies including the Canadian dollar, though analysts said the positive sentiment may not last if the closely watched US payroll report due on Friday is as gloomy as expected.
"We've had a good bounce in risk appetite and in equity markets heading into what is a long weekend for Canada and the US, and I suspect that given that two-day move upward, we may end up seeing a bit an unwinding of that," said Mark Chandler, head of Canadian fixed income and currency strategy at Royal Bank of Canada.
"We need to have very very good news to keep this in place for tomorrow."
The Canadian dollar ended the North American session at C$1.0378 to the US dollar, or 96.36 US cents, up from Wednesday's North American session close at C$1.0402 to the US dollar, or 96.14 US cents.
The currency at one point hit C$1.0371, its strongest level since Sept. 30.
Chandler said rising oil prices have helped stem losses by the Canadian dollar, which sank through parity with the US greenback in September and has mostly declined since amid persistent fear about Europe's debt crisis and global growth.
Oil prices jumped nearly 3 percent on Thursday, gaining for a second straight day.
A Reuters poll released on Wednesday showed the Canadian dollar is expected to recover from 13-month lows to return to equal value with the US dollar in six months' time, though projections are not as buoyant as they were before September's global meltdown.
Markets are now focused on Friday's US payroll report for September, which is expected to show a gain of 60,000 jobs, according to a Reuters survey of analysts, after August's flat reading.
Canadian employment data is also due out, with 10,000 new jobs expected.
A relatively strong jobs gain by Canada versus the United States could boost the Canadian currency, said Michael Gregory, senior economist at BMO Capital Markets.
"We're probably going to see a Canadian job number that in tone is going to be a little bit more robust than the US counterpart -- and that perhaps will provide a little life in the end to the Canadian dollar," Gregory said.
Friday is also the last day of trading before the holiday weekend in both Canada and the United States, so volume may peak early in the day, Gregory said.
Bond prices were lower across the board on Thursday. The two-year Canadian government bond lost 11.5 Canadian cents to yield 0.961 percent, while the 10-year bond lost 77 Canadian cents to yield 2.224 percent.
Copyright Reuters, 2011