Canadian dollar advances, European Central Bank head vows to preserve euro

TORONTO – The Canadian dollar closed higher Thursday on another round of hopes that the European Central Bank will contain the eurozone’s debt crisis.

The loonie moved up 0.55 of a cent to 99.05 cents US following the ECB president’s announcement that the institution is ready to step up to protect the euro.

Mario Draghi, in London for an investment conference, said that the “ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”

The yield on Spain’s 10-year government bonds fell sharply following Draghi’s comments, moving down 40 basis points to 6.94 per cent. Anything over seven per cent is considered unsustainable in the long run.

Market watchers took Draghi’s comment as a signal that the ECB could be more willing to intervene in markets to lower those borrowing rates — which the bank has in recent months said is not part of its mandate.

“These comments are the strongest we have heard from the central banker and provide significant reassurance that the ECB will not simply sit idly by,” said Scotia Capital chief currency strategist Camilla Sutton.

Spain has become the latest victim of the debt crisis. The country is in deep recession and eurozone leaders recently approved a bailout of up to €100 billion for the country’s banks, which are saddled with billions of euros of toxic loans as a result of the collapsed real estate market.

Market sentiment had also been given a boost already on Wednesday, when ECB policymaker Ewald Nowotny suggested that Europe’s bailout fund could be given a banking licence. That would give it the ability to borrow money from the ECB. Such a move would be of particular significance for Spain and Italy as the current bailout fund does not have enough money to rescue them both.

Commodities advanced with traders willing to take on more risk following Draghi’s comments with September crude on the New York Mercantile Exchange ahead 42 cents to US$89.39 a barrel.

Copper was well off early highs, but closed up two cents to US$3.39 a pound while bullion gained $7 to US$1,615.10 an ounce.