TORONTO (Reuters) - The Canadian dollar surged past parity with the U.S. dollar on Thursday to end at its highest level in more than a month as a plan to staunch the European debt crisis sparked euphoria across financial markets.
Global stocks, the euro, crude oil and metal prices all rocketed higher, shaking off months of bearish sentiment in a rally that bolstered commodity-linked currencies such as the Canadian dollar and sank the safe-haven greenback.
"It's a relief rally in a sense. Europe has finally got the plan to have a plan to have a plan laid out," said Shaun Osborne, chief currency strategist at TD Securities.
"On the basis of what we've seen from equities markets today it is no real surprise the Canadian dollar is trading higher, and we may see another cent or two upside from here."
The Canadian dollar ended Thursday's North American session at C$0.9913 to the U.S. dollar, or $1.0088, about 1.3 percent above Wednesday's session close at C$1.0048 to the U.S. dollar, or 99.52 U.S. cents. It was the biggest one-day gain in the currency since early August.
The Canadian dollar touched a session high of C$0.9892 to the U.S. dollar, or $1.0110, its highest level since September 20.
The rally came after European Union policymakers agreed to a plan for the recapitalization of European banks, for a far more powerful rescue fund for the euro zone, and for banks and insurers to accept 50 percent losses on their Greek debt holdings.
For the moment, investors shrugged off the fact that key aspects of the deal, including the mechanics of boosting the firepower of the European Financial Stability Facility and providing Greek debt relief, could take weeks to finalize.
Major U.S. stock indexes, which had flirted with bear territory in the summer because of the debt crisis, surged on the deal, with the benchmark S&P 500 on track to post its biggest monthly gain since 1974.
Metal prices jumped 5 percent or more, U.S. oil rose more than 4 percent and the euro gained 2.4 percent.
Signs of stronger growth in the United States, Canada's largest trading partner, also boosted the Canadian dollar.
U.S. gross domestic product expanded at a 2.5 percent annual rate in the third quarter, the Commerce Department said in its first estimate on Thursday. That was a big acceleration from the 1.3 percent pace in the April-June quarter and matched economists' expectations.
But analysts were skeptical the Europe-led euphoria would last, anticipating some market disappointment as details of the plan are worked out. Osborne said he did not believe the strength in risk assets like the Canadian dollar would prevail in the longer term, given global economic headwinds.
"I don't think it is sustainable from a longer-term point of view, given slow global growth, instability in commodity prices, the prospect of weaker growth in Europe and lower interest rates in the euro zone perhaps taking a bit of an ax to the euro rally later this year or early next year," he said.
"I think the Canadian dollar looks quite rich at these levels. We're still looking for C$1.04 into the end of next year and if we do get that rate cut in Europe and the euro drifting back, potentially dropping back quite sharply, C$1.09 is still our first quarter 2012 forecast."
Canadian government bond prices were lower in the risk-on trade. The two-year bond was down 11 Canadian cents to yield 1.135 percent. The 10-year bond fell 94 Canadian cents to yield 2.483 percent.
Global stocks, the euro, crude oil and metal prices all rocketed higher, shaking off months of bearish sentiment in a rally that bolstered commodity-linked currencies such as the Canadian dollar and sank the safe-haven greenback.
"It's a relief rally in a sense. Europe has finally got the plan to have a plan to have a plan laid out," said Shaun Osborne, chief currency strategist at TD Securities.
"On the basis of what we've seen from equities markets today it is no real surprise the Canadian dollar is trading higher, and we may see another cent or two upside from here."
The Canadian dollar ended Thursday's North American session at C$0.9913 to the U.S. dollar, or $1.0088, about 1.3 percent above Wednesday's session close at C$1.0048 to the U.S. dollar, or 99.52 U.S. cents. It was the biggest one-day gain in the currency since early August.
The Canadian dollar touched a session high of C$0.9892 to the U.S. dollar, or $1.0110, its highest level since September 20.
The rally came after European Union policymakers agreed to a plan for the recapitalization of European banks, for a far more powerful rescue fund for the euro zone, and for banks and insurers to accept 50 percent losses on their Greek debt holdings.
For the moment, investors shrugged off the fact that key aspects of the deal, including the mechanics of boosting the firepower of the European Financial Stability Facility and providing Greek debt relief, could take weeks to finalize.
Major U.S. stock indexes, which had flirted with bear territory in the summer because of the debt crisis, surged on the deal, with the benchmark S&P 500 on track to post its biggest monthly gain since 1974.
Metal prices jumped 5 percent or more, U.S. oil rose more than 4 percent and the euro gained 2.4 percent.
Signs of stronger growth in the United States, Canada's largest trading partner, also boosted the Canadian dollar.
U.S. gross domestic product expanded at a 2.5 percent annual rate in the third quarter, the Commerce Department said in its first estimate on Thursday. That was a big acceleration from the 1.3 percent pace in the April-June quarter and matched economists' expectations.
But analysts were skeptical the Europe-led euphoria would last, anticipating some market disappointment as details of the plan are worked out. Osborne said he did not believe the strength in risk assets like the Canadian dollar would prevail in the longer term, given global economic headwinds.
"I don't think it is sustainable from a longer-term point of view, given slow global growth, instability in commodity prices, the prospect of weaker growth in Europe and lower interest rates in the euro zone perhaps taking a bit of an ax to the euro rally later this year or early next year," he said.
"I think the Canadian dollar looks quite rich at these levels. We're still looking for C$1.04 into the end of next year and if we do get that rate cut in Europe and the euro drifting back, potentially dropping back quite sharply, C$1.09 is still our first quarter 2012 forecast."
Canadian government bond prices were lower in the risk-on trade. The two-year bond was down 11 Canadian cents to yield 1.135 percent. The 10-year bond fell 94 Canadian cents to yield 2.483 percent.
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