* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, Oct 1 (Reuters) - The Canadian dollar rallied half a percent against the U.S. dollar on Monday as investors rushed to buy riskier assets after the United States and Canada agreed to update the North American Free Trade Agreement.
Trade tension has dominated currency markets since April, boosting the dollar and pushing down currencies of trade-dependent countries from South Korea to Mexico. The latest news prompted traders to cover some of their extreme short bets.
Sources with direct knowledge of the talks confirmed the two countries reached an agreement, which involved offering more dairy access to U.S. farmers and Canada agreeing to a side-letter arrangement effectively capping automobile exports to the United States.
“Appetite for risk-taking is a bit firmer today in the backdrop of the trade deal, though the spotlight will be firmly on U.S. jobs data on Friday, which will indicate whether wage growth has picked up,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.
Apart from U.S. jobs data on Friday, PMI data will also be closely watched.
U.S. stock index futures gained while Japanese stock markets climbed half a percent indicating risk appetite wasn’t confined to currency markets.
The dollar index rose a fifth of a percent to 95.32, just below a Sept. 10 high of 95.38 in the previous session.
Sentiment was more subdued in the European session. Italian bond yields surged in opening trade on a report the European Commission was set to reject Italy’s budget plans in November and open a procedure against the country’s public accounts in February.
The euro fell a quarter of a percent to $1.15775 and dropped by a similar margin against the Swiss franc to 1.1368 francs per euro.
Sterling was broadly flat as a ruling Conservative Party Conference got underway over the weekend and British finance minister Philip Hammond said the European Union was in the mood to do a divorce deal. (Reporting by Saikat Chatterjee, editing by Larry King)