The Canadian dollar took flight Wednesday, gaining almost 3 cents to 80.89 cents US, buoyed by rising commodity prices and expectations of an interest rate cut by the Federal Reserve in the United States.
By mid-morning the loonie was up 2.93 cents to 80.89 cents, following a modest gain of 0.37 cents Tuesday.
The Federal Reserve's decision at 2:15 p.m. ET "takes the limelight today," Bank of Montreal said in its morning note to clients.
Many economists expect the U.S. central bank to cut its benchmark Federal funds rate by half a percentage point to 1 percent.
CMC Markets said in a research note from London that currency traders are "now essentially convinced that the Fed will ... drop rates to just 1 percent as they attempt to shore up the U.S. economy."
After three days of falling prices, crude oil was up to more than $66 US a barrel after hitting a 17-month low of $61.30 on Monday. Gold and grains were also up – a benefit to commodity-sensitive currencies such as the Canadian dollar.
Steve Malyon, a currency strategist with the Bank of Nova Scotia, noted that the U.S. dollar was weaker for the second straight session, "falling noticeably against all of its G10 peers."
Analysts were continuing to watch North American stock markets Wednesday, after Tuesday's "relief rally," for further clues as to how the dollar will end the week. Extreme volatility in the equities and foreign exchange markets has made short-term predictions difficult.
For now, however, "the Canadian dollar is performing well as commodity prices rebound, building on yesterday's … gain," Malyon said Wednesday morning.
