BUSINESS

Loonie up amid Greek polls showing support for staying in eurozone

05/28/2012 08:54 EDT | Updated 07/28/2012 05:12 EDT
TORONTO - The Canadian dollar closed higher Monday as risk appetite improved in the wake of polls showing increased support for a party supporting the tough austerity terms that have enabled Greece to receive international bailouts.

The currency rose 0.55 of a cent to 97.68 cents US but off early highs amid worries about Spain's banking sector.

Greece’s New Democracy party came first in all opinion polls published on the weekend, which indicated that Greeks still want their country to keep the euro currency and not revert to the drachma.

The survey results were released three weeks before Greeks return to the polls after May election results that were so splintered they left the country without the ability to form a government.

Markets were unnerved after political parties opposed to the harsh terms of the country’s financial rescue received unexpectedly high support in the May 6 ballot, raising worries that Greece could exit the eurozone. Such a move would extend financial turmoil in the country and spread financial difficulties to other countries using the euro.

Although the Greek polls provided hope that Greece will stay in the eurozone, there were still worries about how the government debt crisis is hurting other southern European countries. The interest rate, or yield, for 10-year Spanish government bonds on the secondary market — a key indicator of market confidence — was up 13 basis points to 6.42 per cent.

A rate of seven per cent is considered unsustainable over the long term and there is concern that Spain might soon be pushed to join the ranks of Greece, Ireland and Portugal and seek an international bailout.

The spike came as Spanish lender Bankia said it needs a €19-billion bailout, raising questions about how Spain intends to find the money.

At the same time, Spain’s prime minister, Mariano Rajoy, insisted that the country’s banking sector would not need an international rescue.

A willingness to take on more risk and a lower U.S. dollar sent the July crude contract on the New York Mercantile Exchange up 29 cents to US$91.15 barrel in electronic trading on the New York Mercantile Exchange late in the afternoon.

Copper rose two cents to US$3.47 a pound while gold bullion ran ahead $4.10 to US$1,573 an ounce.

Commodities have been beaten down this month on demand concerns and a U.S. dollar that surged as traders sought safety.

A stronger greenback usually helps depress commodity prices, which are denominated in dollars, as it makes oil and metals more expensive for holders of other currencies.

Traders also looked to a slew of key economic data being released this week, including manufacturing data for China and the United States and gross domestic product figures being released by Ottawa and Washington. The week ends with the release of the U.S. non-farm payrolls report for May.