Echoes of artillery fire in Korea reverberated across world financial markets Friday as investors, already gun-shy over debt problems in Europe, continued to seek refuge in the perceived safe haven of the U.S. dollar.
The Canadian dollar, which mostly stood its ground and even advanced earlier in the week, was among the latest casualties, down one full cent at 98.04 cents (U.S.).
The euro, which halted its recent slide with a fractional improvement Thursday, retreated again Friday.
John Curran, senior vice-president, CanadianForex, said in a note that recent gains by the loonie on speculation of future rate hikes were "swept away instantly by the negative impact of Korean and European events."
Mr. Curran said "risk aversion is rampant" as a result of the tense military situation in Asia as North Korea's state-run news agency said planned naval exercises by South Korea and the United States was moving the peninsula "closer to the brink of war."
The naval exercises follow an incident Tuesday when the North rained down shells on a South Korean island near the demilitarized zone that separates the two Koreas, killing four people.
Meanwhile, "Irish debt concerns are peaking and fear of contagion to other indebted countries is bubbling over," Mr. Curran added in his note.
"The euro and commodity currencies are taking the brunt of the punishment as investors scale back risk profiles."
Reports suggest Portugal's partners in the European Union were urging the country to seek aid to prevent a sustained attack from bond market speculators.
Meanwhile, other reports say that an international bailout loan for Ireland could include an effort to make Ireland's senior bondholders - chiefly foreign banks - eat losses from the country's debt-crippled banks.
And some experts say it is only a matter of time before Spain - like Ireland and Greece - will be forced to seek for outside help.
Concerns about further European bailouts, which would cause capital to flow out of other currencies and commodities, were amplified by low trading volumes as many U.S. traders took an extended Thanksgiving holiday.
Oil closed down 10 cents at $83.76 a barrel, while copper was off 5 cents at $3.75 a pound.
The December gold contract backed off $10.60 to $1,362.40 an ounce.
Camilla Sutton, chief currency strategist, Scotia Capital, also noted that most drivers were working against Canadian dollar on Friday.
"With no U.S. or Canadian data expected, the Canadian dollar will take its cues from the broader market," Ms. Sutton predicted of the day's trading.
Looking toward next week, Ms. Sutton sees "significant domestic fundamental risk for Canada," including a report that will likely show that gross domestic product rose just 0.1 per cent in September, with the consensus for third-quarter GDP at just 1.5 per cent.
"This, combined with [next]Friday's double employment release [in Canada and the United States]. . . will set an important tone for the U.S. and Canadian dollars going forward," she said.