TORONTO - The Canadian dollar edged above $1.05 US on Tuesday as traders awaited word from the U.S. Federal Reserve on interest rates and the state of the world's largest economy.
The loonie was up 0.30 at 105.06 cents US at market close after trading as high as 105.86 cents US earlier in the day.
"The Canadian dollar is slightly higher today after hitting its highest level since 2007 as stronger commodity prices and indications that the Conservatives are on the verge of a majority win are pushing the loonie higher," Bob Tebbutt, vice-president of Peregrine Financial Group Canada Inc., wrote in a note.
Investors are looking towards the Federal Reserve's two-day meeting that begins Tuesday, watching for any changes to the Fed's outlook on the economy. They also expect to find out if the Fed's $600-billion bond-buying effort will expire as scheduled in June.
The Fed meets later Tuesday and again Wednesday and Fed chairman Ben Bernanke is scheduled to hold a news conference at the end of the meetings.
Higher interest rates tend to support a currency's value, because they give investors bigger returns. The Fed has kept its key rate near zero since December 2008 and launched a $600-billion bond-buying program to keep rates low. Many analysts expect that the Fed will keep rates low for a long time despite rising gas and food prices.
Meanwhile, commodity prices were mixed as some investors moved to take profits from recent highs, while others speculated prices could go higher. Oil dropped 20 cents to US$112.08 a barrel and gold fell $10.20 to US$1,498.90 per ounce, while copper gained three cents to US$4.33 a pound.
Canada will see little economic data until Friday's Gross Domestic Product report for February, which is expected to be flat. In advance of that announcement, the loonie continues to trade on commodity price movements and investor's increased appetite for risk.
