Canadian Dollar at Almost Three-Year High as Fed Keeps Interest Rates Low

Canada’s dollar traded at almost a three-year high after the Federal Reserve decided to keep its interest-rate target a record low levels and finish $600 billion of bond purchases on schedule in June.

The Canadian currency erased losses amid forecasts the Fed will be slower to boost interest rates than the Bank of Canada. The nation’s economy may have expanded 3.1 percent in February from a year earlier, according to Bloomberg News survey of economists before the April 29 report.

“The market’s going to look at this as business as usual - - sell U.S. dollars,” said John Curran, a senior vice president in Toronto at CanadianForex Ltd., an online foreign-exchange dealer. “What might give it a bit of fuel is a strong Canadian gross domestic product number on Friday.”

The loonie, as the Canadian currency is known for the image of the aquatic bird on the C$1 coin, was little changed at 95.02 cents versus the greenback at 5:06 p.m. in Toronto, from 95.16 cents yesterday. It weakened earlier as much as 0.6 percent. One Canadian dollar buys $1.0524.

The Canadian dollar has appreciated 11.9 percent since the end of June and touched 94.55 cents on April 21, the strongest level since November 2007.

Fed Action

The Fed left its benchmark interest rate in a range of zero to 0.25 percent, where it’s been since December 2008, and retained a pledge in place since March 2009 to keep it “exceptionally low” for an “extended period.” The central bank will keep reinvesting proceeds of maturing mortgage debt purchased in the first round of large-scale asset purchases that lasted from December 2008 to March 2010.

The greenback remained lower against most of its other major counterparts after Fed Chairman Ben S. Bernanke said in his first press conference after a policy decision that he expects first-quarter economic growth to be “relatively weak.”

The U.S. central bank’s benchmark will increase to 0.5 percent during the first quarter of 2012, according to the median forecast of economists surveyed by Bloomberg News.

The Bank of Canada, which is forecast to boost the target rate for overnight loans to 1.5 percent during the third quarter and 2 percent during the last three months of 2011, according to a separate survey. The central bank has held its benchmark interest rate at 1 percent since September, when it increased it for the third time last year. The next BOC meeting is May 31.

Bonds Fall

Canadian government bonds fell, pushing the yield on the benchmark 10-year security up eight basis points, or 0.08 percentage point, to 3.27 percent. The price of the 3.5 percent security maturing in June 2020 declined 64 cents to C$101.79.

The New Democratic Party has become the second-most popular political party in Canada before the May 2 federal election, three polls show.

The NDP has 30 percent support among decided voters, according to an Angus Reid Public Opinion poll, conducted for the Toronto Star and La Presse newspapers. The governing Conservative Party has 35 percent support, while the Liberals, who had the second-most seats in the House of Commons, have 22 percent. The online poll surveyed 2,040 Canadian adults on April 25 and 26. It carries a margin of error of 2.2 percent, 19 times out of 20.

“The Harper government, whatever you want to say about their domestic policies, their economic stewardship has been very good,” said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey. “The currency market certainty has that judgment.”

To contact the reporter for this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net