Canadian dollar rises ahead of Fed decision

The Canadian dollar rose to a two-week high Tuesday as the U.S. dollar lost strength.

The loonie advanced to 99.20 cents US early in the day, its highest level since October 15,before giving back some of thatgain to closeat 99.06 cents,up 0.64 of a cent.

The greenback slipped on speculation the U.S. Federal Reserve will launch another round of stimulus Wednesday to support the flagging American economy.

It's widely expected the U.S. central bank will announce another round of quantitative easing in the form of monthly bond purchases of $100 billion US over the next six months.

Questions about the size and duration of such a program have put pressure on the U.S. dollar recently, since it involves the Fedgenerating vast quantities of currency.

Financialmarketsalso looked to Tuesday's midterm elections in the U.S. The Republicans are expected to gain at least partial control of Congress by winning control of the House of Representatives.

Gridlock anxiety

Some traders worry this could lead to gridlock in Washington, meaning there could be a slowdown in new government spending and regulatory reform.

"Both developments should prove medium-term (U.S. dollar) negatives," said a commentary from Scotia Capital.

"The Republicans gaining support and potentially controlling the House will add a level of complication to agreement on a credible fiscal plan going forward, which in turn should weigh on the (U.S. dollar)."

Scotia Capital said the loonie was also supported by increasing speculation that the Canadian government will approve the $38.6-billion US bid by BHP Billitonfor Potash Corporation of Saskatchewan.

Although BHP would pay for the takeoverin U.S. dollars, Canadian shareholders of Potash would increase demand for the loonie when they translated their paymentinto Canadiancurrency.

The Americandollar was put under additionalpressureafter an unexpected quarter-point interest rate hike by Australia's central bank to deal with inflation risks.