TORONTO - The Canadian dollar closed higher Tuesday amid a greater tolerance for risk on financial markets on hopes Greece can come to an agreement with its creditors and avoid a messy exit from the eurozone.
The loonie advanced 0.56 of a cent to 80.81 cents US as the Wall Street Journal reported that Greece will seek an extension to its bailout deal from the rest of the eurozone on Wednesday.
Worries about a possible Greek exit from the eurozone grew after talks between the country's finance minister and his 18 eurozone counterparts broke down Monday.
Greece was told it had to ask for an extension to its bailout program before further negotiations on the country's future financing and economic course could take place. But Greece's new Syriza government refused, saying it had a strong mandate to reject the austerity measures that have kept the country from financial collapse.
Without some sort of financing arrangements in place after the current bailout ends after Feb. 28, Greece would face real difficulties meeting its obligations, meaning bankruptcy and a potential exit from the euro would loom for Greece once again.
"Our base case is that we see Greece easing on demands; however the situation continues to be highly uncertain," said Camilla Sutton, chief FX strategist and managing director at Scotiabank.
Oil prices also advanced for a third straight session, closing up 75 cents at US$53.53 a barrel, which also sparked solid gains in the Canadian currency.
"Oil prices and particularly the ability of both Brent and West Texas Intermediate to close above their 50-day moving average ($55.56 and $52.19, respectively), is supporting the rally in the petrol currencies like (Norway and Canada) and continue to be a driving force behind Canadian dollar movement," Sutton said.
Metal prices were weak with the April gold bullion contract down $18.50 to US$1,208.60 an ounce, while the March copper contract slipped two cents to US$2.58 a pound.
It is a light week for economic data with traders looking to Canadian retail trade data for December at the end of the week. In the U.S., investors will digest data on housing starts and the most recent leading indicator, a look at how the economy should perform six months from now.
Also, traders will examine the minutes from the latest interest rate meeting of the U.S. Federal Reserve. The document will be scrutinized for any hint about when the Fed might start hiking rates this year. Many analysts have said a recent run of strong economic data makes it difficult for the Fed not to raise rates as early as June.