TORONTO: The Canadian dollar on Thursday strengthened by as much as two cents against its US counterpart, which tumbled after the Federal Reserve indicated it may not be as ready to pull back its stimulus measures as markets had predicted.
Shares and bonds rallied globally, while the US dollar fell sharply as markets reassessed when the US central bank would wind down its asset purchase program.
"Markets pretty much rallied globally. That put a bid on everything non-US dollar. Greenback weakened across the board," said Benjamin Reitzes, senior economist and foreign exchange strategist at BMO Capital Markets.
Fed Chair Ben Bernanke said in a speech after markets closed on Wednesday that "highly accommodative policy is needed for the foreseeable future," adding the US unemployment rate may be overstating the health of the labor market.
In minutes released earlier on Wednesday, about half of the Fed's policymakers felt the bond-buying measure should be brought to a halt by year end when they met in June, but many wanted reassurance the US jobs recovery was on solid ground before any policy retreat.
"Bernanke didn't give us any new information. He's doing his best to tell markets tapering (quantitative easing) QE and ending QE is not the same thing as raising rates. I think that's something the markets really haven't been able to grasp entirely," said Reitzes.
At 9:38 a.m. (1338 GMT), the Canadian dollar was trading at C$1.0418 versus its US counterpart, or 95.99 US cents, sharply higher than Bank of Canada's posted close at C$1.0518, or 95.08 US cents.
The Canadian dollar, which was outperforming most other major currency counterparts, had touched as high as C$1.0326 earlier in the session, its strongest level in three weeks.
In Canada, the Bank of Canada is expected to keep its tightening bias in the first interest rate decision under new Governor Stephen Poloz, but slow growth and low inflation means a rate hike is not seen until the fourth quarter of 2014, a Reuters poll showed.
Prices for Canadian government debt were higher, with the two-year bond up 4.5 Canadian cents to yield 1.128 percent. The benchmark 10-year bond climbed 25 Canadian cents, yielding 2.463 percent.
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