TORONTO -- A further improvement in global risk sentiment is keeping the dollar on the defensive and at multiweek lows against the euro and other currencies save for the yen so far Monday.
The latest positive mood swing has been fed by news that U.S. commercial lender CIT Group Inc. has reached an agreement with its creditors and for now looks to avoid collapse.
"Markets are clearly relieved to avoid yet another big-name bankruptcy, and just about everything risky is rallying this morning," said currency strategists at TD Securities, pointing to rallies for most overseas stock exchanges and an extension of recent gains for risk-sensitive currencies.
Sentiment also continues to be buoyed by the stream of generally positive second quarter earnings results being reported by major corporations, which continues through this week.
"Market participants are by now well aware that the first wave of earnings have at least met, and more generally exceeded expectations," according to HSBC Group currency strategists. "And that reality has, for now, overwhelmed concerns of further stresses in the economy and financial system."
The euro has also been one of the main beneficiaries of this new-found risk appetite, with the single currency breaking up through the top of its recent trading range at $1.42.
Euro sentiment was helped by Jean-Claude Juncker's remark at the end of last week that the euro's strength against the dollar is structural and therefore not worrying. Mr. Juncker is chairman of the euro-zone group of finance ministers and his remark has helped to reduce fears of intervention if the euro continues to rise.
On the other hand, the single currency did get a hit from a report that the German company Hypo Real Estate will need another €10 billion ($14.12 billion) from the German government to stay afloat.
Early Monday, the euro is at $1.4230 from $1.4098 late Friday, and trades at ¥134.45 from ¥132.63. The dollar has moved to ¥94.45 from ¥94.34, according to EBS. The U.K. pound trades at $1.6512 from $1.6357, and the dollar is at CHF1.0675 from CHF1.0735 versus the Swiss franc.
The Canadian dollar is also higher in line with the improved global risk tone early Monday, having traded to fresh five-week highs overnight.
Recent gains for the Canadian currency have again brought it within sight of the C$1.10 mark and levels which the Bank of Canada has warned may impair recovery prospects for the Canadian economy.
The Canadian central bank's next policy statement on Tuesday together with the release of its latest Monetary Policy report on Thursday are key event risks for the Canadian dollar this week, and could potentially stand in the way of further strengthening if the Bank again warns against further Canadian dollar appreciation.
Currency strategist Sasha Tihanyi of Scotia Capital in Toronto suggested that there is a "definite risk that the Bank looks to verbally intervene again," given that the pace of the Canadian dollar's recent appreciation has been "stunning" and that it is "not just the level but also the rapidity with which the currency strengthens that gives the Bank concern."
Early Monday, the U.S. dollar was at C$1.1052 from C$1.1168 late Friday.
