TORONTO: The Canadian dollar strengthened to a nearly two-week high against its US counterpart on Thursday as risk appetite picked up one day after the US Federal Reserve decided to keep interest rates unchanged.
The Fed on Wednesday signaled an increasingly cautious approach to future US rate increases, sparking a rally in world shares and bonds.
"Fed-induced risk appetite" drove strength in growth-sensitive currencies such as the Canadian dollar, said a research note from Scotiabank.
Oil rose for a second day as a weaker US dollar and a surprisingly large drop in US crude inventories emboldened investors ahead of next week's meeting of OPEC members and Russia to discuss supply. US crude prices were up 2.03 percent at $46.26 a barrel.
At 9:15 a.m. EDT (1315 GMT), the Canadian dollar was trading at C$1.3018 to the greenback, or 76.82 US cents, stronger than Wednesday's close of C$1.3107, or 76.30 US cents.
The currency's weakest level of the session was C$1.3104, while it touched its strongest since Sept. 9 at C$1.3000.
It was the fourth straight day the loonie gained ground against the greenback after having hit its lowest in seven weeks at C$1.3248 on Friday.
Canadian government bond prices were higher across a flatter yield curve in sympathy with US Treasuries. The two-year bond firmed 1 Canadian cent to yield 0.571 percent and the benchmark 10-year rose 30 Canadian cents to yield 1.115 percent.
The 10-year yield touched its lowest since Sept. 9 at 1.097 percent, while the spread between the 2-year and 10-year yields narrowed by 2.8 basis points to 54.4 basis points, indicating outperformance for longer-dated maturities.
Canadian inflation and retail sales data are due on Friday. The annual inflation rate is forecast to have edged up to 1.4 percent in August, while investors will be looking for signs that the federal government's new child benefit payments boosted retail sales.
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