The Canadian dollar surged well over a full U.S. cent to close above parity with the greenback Thursday after European leaders came up with a formula for dealing with the region's crippling debt crisis.
The currency jumped 1.36 cents (U.S.) to $1.0088, its first close above parity since Sept. 20, as investors bought up riskier assets following the agreement. It had moved as high as $1.0109 during the session.
Since late September, the loonie had been caught up in intense market volatility as traders fled to the safe-haven status of the greenback on worries about a Greek default and the effect such a move would have on the financial system.
It had tumbled as low as just above 95 cents.
But markets were relieved after European leaders came up with a three point plan to deal with the debt crisis, which has threatened the region's banks and a fragile global economic recovery.
These included a significant reduction in Greece's debts and private creditors like banks will be asked to accept 50 per cent losses on the bonds they hold.
The continent's banks will be strengthened, partially so they could sustain deeper losses on Greek bonds.
The deal also calls for a reinforcement of a European bailout fund so it can serve as a €1-trillion ($1.41-trillion U.S.) firewall to prevent larger economies like Italy and Spain from being dragged into the crisis.
“There had been enough trial balloons floated such that there really weren't any surprises and as many have commented, the expectations were set sufficiently low that it required little momentum to hurdle the bar,” said Stewart Hall, director and senior fixed income and currency strategist at RBC Capital Markets.
“In general, markets are happy that the decision making process seemed to be finally working and willing to put back the lack of detail on the back burner for another day.”
After arriving in Perth, Australia, for a Commonwealth summit, Prime Minister Stephen Harper expressed “cautious optimism” at the tentative package worked out by the Europeans.
Mr. Harper said while progress has been made, the world has been “awaiting something big in terms of scale and in terms of sacrifice” from Europe.
The loonie also found strong support from commodity prices which shot up in the wake of the agreement with the December crude contract on the New York Mercantile Exchange up $3.76 to $93.96 a barrel.
Hopes for higher demand also sent metal prices higher with the December copper contract in New York ahead 20 cents to $3.69 a pound.
Bullion was up $24.20 at $1,747.70 an ounce.
Traders were also encouraged by data showing that the U.S. economy grew modestly over the summer after nearly stalling in the first six months of the year. The U.S. Commerce Department said the economy expanded at an annual rate of 2.5 per cent in the July-September quarter, lifted by stronger consumer spending and greater business investment.
That's nearly double the 1.3 per cent growth in the April-June quarter, and a vast improvement over the anemic 0.9 per cent growth for the entire first half of the year.