TORONTO: The Canadian dollar strengthened to its firmest level in more than a year against its US counterpart after the US Federal Reserve announced an aggressive third round of stimulus on Thursday.
The US central bank said it will buy $40 billion of mortgage debt per month and continue to purchase assets until the outlook for jobs improves substantially.
In a significant shift in the direction of US monetary policy, the Fed has tied its unconventional bond buying directly to economic conditions.
"The Fed is making a clear commitment they're going to continue to supply liquidity to the system until we see better numbers emerge in US labor markets," said Paul Ferley, assistant chief economist at Royal Bank of Canada.
"It's an indication of the very aggressive approach by the Fed. A little more aggressive than what was assumed."
In addition, policymakers said they would likely hold interest rates at current lows until at least mid-2015 from an earlier guidance of 2014.
Canada's dollar touched C$0.9693 versus the US dollar, or $1.0317, firmer than C$0.9764, or $1.0242 shortly before the announcement, and stronger than Wednesday's North American session close at C$0.9766, or $1.0240.
This is the currency's strongest level against the US dollar since Aug. 4, 2011 when it touched C$0.9603, or $1.0413.
It has rallied more than 2 percent in the last week on the back of a Fed stimulus move, a stronger Canadian labor environment, a hawkish Bank of Canada stance and a bond buyback plan announced by the European Central Bank.
The currency has also outperformed other major currencies this year, strengthening more than 5 percent against the greenback.
Canadian government bond prices fell across the curve after the Fed decision, with the two-year bond down 1 Canadian cent to yield 1.195 percent. The benchmark 10-year bond slid 17 Canadian cents, yielding 1.921 percent.
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