The Canadian dollar touched its lowest level in more than 7 weeks against the U.S. dollar on Friday as record borrowing costs for Italy stoked fears that the euro zone's spiraling debt crisis would lead to a break-up of the currency bloc.

Italy paid a record 6.5 percent to borrow over six months on Friday and its longer-term borrowing costs soared far above levels seen as sustainable for public finances, raising the pressure on Rome's new emergency government.

Trading was thin for the second day on Black Friday, the traditional beginning to the U.S. holiday shopping season, following a U.S. market holiday on Thursday for Thanksgiving.

Markets are going to be fairly illiquid so it could be either very quiet or very whippy depending on what happens here, said Matt Perrier, director of foreign exchange sales, BMO Capital Markets.

Earlier in the morning, the Canadian dollar touched a low of C$1.0524 to the U.S. dollar, or 95.02 U.S. cents, its weakest level since October 5.

Italian and Portuguese spreads were widening out, the euro traded to its lows on the day and that pushed the (U.S. dollar) higher across the board, said Perrier.

It's been a fairly big move by the looks of it this week so I wouldn't be surprised to see a little bit of (U.S. dollar) profit-taking on a technical basis ... and see Canada do a little bit better just on some position squaring and a correction basis.

By 8:04 a.m., the Canadian currency had recovered slightly to C$1.0512 to the U.S. dollar, or 95.13 U.S. cents, still below Thursday's North American session close of C$1.0469, or 95.52 U.S. cents.

After breaking through C$1.05, the next significant support level for the Canadian dollar is seen at the October low of C$1.0658. Bigger picture, the currency eyes resistance back at C$1.0300-C$1.0350.

Canadian government bond prices eased across the curve, alongside U.S. Treasuries.

Canada's two-year bond slipped 4 Canadian cents to yield 0.927 percent, and the 10-year bond was down 25 Canadian cents to yield 2.079 percent.