The Canadian dollar jumped on Friday as the greenback came under heavy global selling pressure in favour of European currencies, thanks to strong European economic data and a perception that some central banks may diversify away from US-dollar denominated reserves.
The Canadian dollar ended the week at C$1.1357 to the US dollar, or 88.05 US cents, up from C$1.1414, or 87.61 US cents, at Thursday's close. Early in the session, the US currency tumbled against the euro on a combination of positive German economic news and a renewed focus on Asian central bank reserve diversification.
"The Canadian dollar very much took flight due to US dollar weakness," said strategist Eric Lascelles at TD Securities. "It's not even clear that the appetite is shifting towards Canada, but simply that the desire to sell the US dollar has grown to such an extent that it is being reflected across a wide variety of currencies," he added.
The euro climbed above $1.31 for the first time since April 2005, while the greenback fell to its lowest level against sterling in nearly two years, and to its lowest against the Swiss franc since June. The slide was also propelled by thin market conditions after the US Thanksgiving holiday.
"There is an unusual amount of volatility when volumes are light, and that certainly fits the Thanksgiving holiday, so I wouldn't be surprised if perhaps some of this (movement) unwinds next week," Lascelles said. Helping to sink the US dollar on Friday was a Chinese central bank official's academic paper, which said East Asian countries' reserves were at risk from too much exposure to the declining US dollar.
Similar sentiments about reserve diversification seem to be occurring with greater frequency, and they naturally stir up the markets, said Stewart Hall, market strategist with HSBC Canada.