TORONTO: The Canadian dollar strengthened to a nine-month high against its US counterpart on Wednesday as oil rose, while investor attention turned to the Federal Reserve interest rate announcement later in the session.
The loonie has rallied more than 16 percent from a 12-year low in January of C$1.4689, helped by better-than-expected domestic economic activity, fiscal stimulus and rebounding oil prices.
Oil prices on Wednesday reached their highest level of 2016, driven by a falling dollar and evidence of declining US supply. US crude prices were up 2.02 percent to $44.93 a barrel.
A shift in expectations for the direction of Bank of Canada interest rates has added to recent support for the loonie. The market has swung from implying at the start of March a more than 50 percent chance of a rate cut this year to implying modest risk of a hike, overnight index swaps (OIS) showed.
At 9:08 a.m. EDT (1308 GMT), the Canadian dollar was trading at C$1.2594 to the greenback, or 79.40 US cents, stronger than Tuesday's close of C$1.2621, or 79.23 US cents.
The currency's weakest level was C$1.2632, while it touched its strongest since July 6 last year at C$1.2571.
On Tuesday, the currency saw little reaction to comments from Bank of Canada Governor Stephen Poloz that it would take another significant economic shock for the central bank to consider cutting rates again.
In its announcement scheduled for 2 p.m. ET (1800 GMT), the US Federal Reserve is expected to keep interest rates unchanged as it continues to monitor the impact from weakening global growth but may seek to signal to markets it is determined to resume policy tightening this year.
Canadian government bond prices were higher across the maturity curve, with the two-year price up 3 Canadian cents to yield 0.682 percent and the benchmark 10-year rising 8 Canadian cents to yield 1.543 percent.
The 10-year yield reached on Tuesday its highest since Dec. 7 at 1.577 percent.
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