The Canadian dollar rallied against the greenback in the U.S. trading session to its strongest level in more than 3-1/2 years as risk aversion dissipated following the release of a draft conclusion from the EU leaders summit today which includes some sort of an agreement to deal with the Greek debt crisis and contagion.
According to the EU summit draft, the EFSF, (EU rescue fund) will provide loans to Greece, Ireland and Portugal at a lower interest rate and for longer maturities.
The Canadian dollar began strengthening over the US Dollar since July 12 and even more after the Bank of Canada signaled it was closer to raising interest rates when it used surprisingly hawkish language in its rate decision statement, as it held its overnight rate at 1 percent.
Bank of Canada Governor Mark Carney said that as the recovery progresses, monetary policy can be expected to move away from exceptionally stimulative levels, while highlighting global risks.
The loonie was further boosted after the news leaked out of the EU draft proposal today at the beginning of the U.S. session, USDCAD fell to 0.9422, the lowest level since November 2007.
“The short term catalyst was more about global factors … in the sense that the euro just popped higher on headlines of what appeared to be a leak of the euro zone summit conclusions and managed to spill over into the (U.S.) dollar being sold against everything including Canada,” said Adam Cole, global head of FX strategy at RBC Capital Markets in London.