The Canadian dollar strengthened in thin trade on Friday as investors headed back to riskier assets, hopeful that leadership change will put Italy back on the path to fiscal health and avoid a full-blown eurozone crisis. Global equities surged more than 2 percent and the euro rallied against the dollar after an Italian vote on economic reforms eased fears that its debt burden would jeopardise the eurozone's future.
The Canadian dollar climbed more than a cent in the risk-on trade, hitting a session high C$1.0107 to the US dollar, or 98.94 US cents, before settling back slightly. "It looks like the recent political moves in Europe have boosted risk sentiment slightly, but I think what you're seeing are moves in a very thin market," said John Curran, senior vice president at CanadianForex, a commercial foreign exchange dealing firm.
Canadian bond markets were closed for the Remembrance Day holiday. At 4 pm (2100 GMT), the Canadian dollar was at C$1.0112, or 98.89 US cents, according to Thomson Reuters data, well above Thursday's Bank of Canada close at C$1.0177 to the US dollar, or 98.26 US cents.
It had weakened as far as C$1.0232 to the US dollar, or 97.73 US cents, overnight, before strengthening on the risk-on sentiment in the wake of the approval of austerity measures by Italy's Senate. Italy became the latest focus of a still uncontained crisis that pushed the bond yields of the region's third-largest economy sharply higher this week. Investors have feared it could be the next country in the eurozone to need a bailout. Curran said in a note that C$1.0280 is a key US dollar resistance level, while the C$0.9980-C$1.0050 zone should provide support.