TORONTO: The Canadian dollar strengthened against the greenback on to its highest level in a nearly three months after minutes from the Federal Reserve's latest policy meeting suggested rate hikes south of the border may not come as soon as some had feared.
The minutes sent the Canadian dollar to a session high and propelled it to its fourth straight day of gains. Since hitting a 4-1/2-year low in late March, the Canadian dollar has rebounded by more than 3 percent.
Recent stronger-than-expected economic data and better risk appetite has also helped improve sentiment for the loonie, prompting some investors to cover their short positions.
The minutes of the March policy meeting released on Wednesday showed the Federal Reserve was worried that investors would overreact to published forecasts that suggested a more aggressive cycle of interest rate increases.
At a press conference after that meeting, Fed Chair Janet Yellen had said the "considerable time" between when the US central bank ends its bond-buying program and when it raises rates could be around six months, depending on the economy, a definition that rattled markets.
"Literally a month ago we were thinking the FOMC was pretty adamant about rate hikes sooner rather than later," said Rahim Madhavji, president at KnightsbridgeFX.com in Toronto.
"Now it just creates a little bit more uncertainty and that may not be the case. There might be accommodative policy for some time, possibly longer than people expected, and that's got the loonie rallying."
A faster time frame for the Fed raising rates is seen as hurting the loonie because it would benefit the US dollar.
The Canadian dollar ended the North American session at C$1.0872 to the greenback, or 91.98 US cents, stronger than Tuesday's close of C$1.0922, or 91.56 US cents.
The currency climbed as high as C$1.0858, its best level since mid-January.
With a light economic calendar in the coming days, attention was turning to the Bank of Canada's policy announcement next Wednesday. The central bank's more dovish stance has been a major driver of the currency in recent months, and investors will be watching to see if the bank alters its tone.
Madhavji expects the Canadian dollar to trade in the C$1.08 to C$1.11 range leading up to the meeting. It will be difficult for the currency to get past the C$1.08 mark until investors get something more concrete from the Bank of Canada, though that is unlikely to happen next week, he said.
"As long as they don't react negatively to the rise in the Canadian dollar and as long as they don't discount the strong economic data that we've seen in Canada over the last several weeks, that in and of itself would be positive for the Canadian dollar," Madhavji said.
Canadian government bond prices were mixed across the maturity curve, with the two-year up 2 Canadian cents to yield 1.071 percent, while the benchmark 10-year was down 5 Canadian cents to yield 2.467 percent.
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