Nov. 4 (Bloomberg) -- Canada’s currency appreciated to the highest level in a week after the Federal Reserve reiterated its intention to keep interest rates “exceptionally low” for “an extended period” and said the U.S. economy is picking up.

The Canadian dollar, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, rose for a third day as the Fed held its target rate for overnight lending between banks at zero to 0.25 percent after a two-day policy meeting. The U.S. is Canada’s largest trading partner.

“The general thrust seems to be fairly expansive and good for risk assets,” said Sacha Tihanyi, a currency strategist in Toronto at Bank of Nova Scotia, Canada’s third-largest lender.

Canada’s currency appreciated 0.3 percent to C$1.0631 per U.S. dollar at 4:37 p.m in Toronto, from C$1.0661 yesterday. It touched C$1.0596, the strongest since Oct. 26. The currency reached C$1.0870 on Nov. 2, the weakest level in a month. One Canadian dollar buys 94.06 U.S. cents.

The loonie earlier pared gains after crude oil, the nation’s biggest export, retreated from its high of the day. Stocks extended an advance after the Fed’s announcement, then erased most of their gains.

Fed Chairman Ben S. Bernanke is trying to determine when the U.S. recovery is strong enough to withdraw the $1 trillion the Fed injected to avert a depression.

Spending ‘Constrained’

“Businesses are still cutting back on fixed investment and staffing, though at a slower pace,” the Federal Open Market Committee said in a statement today in Washington. “Household spending appears to be expanding, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit.”

The European Central Bank and Bank of England are scheduled to release monetary-policy decisions tomorrow. Job reports in both the U.S. and Canada this week may also influence foreign- exchange markets, said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto.

Employers in Canada added 10,000 jobs last month, after a gain of 30,600 in September, according to the median forecast of 22 economists in a Bloomberg News survey. Statistics Canada is due to report the data Nov. 6. The Labor Department will report on the same day that U.S. payrolls shrank by 175,000 jobs in October, from 263,000 the previous month, according to another Bloomberg survey.

The Bank of Canada on Oct. 20 reiterated a conditional commitment to leave its key interest rate at a record low 0.25 percent through June 2010, and bank Deputy Governor John Murray repeated that today in a speech in Prince George, British Columbia. The Reserve Bank of New Zealand signaled a similar commitment last week.

Three Cents of Parity

Officials including Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty have voiced concern about the strength and volatility of the Canadian dollar. The currency, which gained 19 percent this year through Oct. 19, lost 3.2 percent since the central bank intensified warnings the next day that its appreciation threatens the economy.

The loonie came within three cents of parity with its U.S. counterpart when it touched C$1.0207 on Oct. 15. The currencies last traded on a one-for-one basis in July 2008, when crude oil reached a record C$147.27 a barrel. Canada is the biggest supplier of energy products including crude to the U.S.

Crude for December delivery traded at $80.19 a barrel on the New York Mercantile Exchange, up 0.7 percent, after rising as high as 1.8 percent to $81.06 following a report showing that U.S. inventories unexpectedly dropped. December gold futures were up 0.7 percent to $1,092.90 an ounce, near a record high. Raw materials including crude and gold generate more than half of Canada’s export revenue.

Bonds Fall

Government bonds fell, pushing the 10-year Canadian note’s yield up five basis points, or 0.05 percentage point, to 3.48 percent. The price of the 3.75 percent security due in June 2019 decreased 38 cents to C$102.21.

Canadian business confidence, an index formulated from a survey of senior corporate officers, rose to 97.8 in the third quarter from 81.9 the previous period, according to the Conference Board of Canada.

To contact the reporters on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net; Matt Townsend in New York at mtownsend9@bloomberg.net

Last Updated: November 4, 2009 16:42 EST