March 17 (Bloomberg) -- Canadas dollar reached its strongest level in almost 20 months versus its U.S. counterpart after the Federal Reserve said it would keep interest rates near zero, spurring demand for currencies tied to economic growth.

The Canadian currency touched C$1.0071, the closest to parity with the greenback since July 23, 2008. Government bonds fell. Consumer prices increased 0.3 percent last month, a report on March 19 is forecast to show.

Greater-than-expected Canadian February CPI on Friday will force a charge at parity if we are still sub-C$1.01, said CJ Gavsie, managing director for foreign-exchange trading in Toronto at Bank of Montreal. Global investors will look to pick up more Canadian-dollar denominated assets with the belief higher domestic rates are on their way.

Canadas currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, appreciated 0.4 percent to C$1.0098 at 4:35 p.m. in Toronto, from C$1.0141 yesterday. It gained against the greenback in 13 of the last 14 sessions. One Canadian dollar buys 99.03 U.S. cents.

The yield on Canadas 10-year note rose two basis points, or 0.02 percentage point, to 3.47 percent. The price of the 3.75 percent security due in June 2019 fell 19 cents to C$102.21.

Economic conditions, including low rates of resource utilization, subdued inflation trends and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period, the Federal Open Market Committee said yesterday in a statement.

Crude, Stocks

Crude oil for April delivery advanced 1.2 percent to $82.68 a barrel after jumping 2.4 percent yesterday, the most since Feb. 16. Oil is Canadas largest export. The Standard & Poors 500 Index gained 0.6 percent to 1,166.21.

The one-year rolling correlation between the Canadian dollar and crude oil is 0.62. A reading of 1 would indicate the two move in lockstep. The loonies one-year correlation with the S&P 500 is 0.67.

The S&P 500 Index managed to register a bullish breakout above the January high at 1150.50 yesterday, with the bid tone in stocks likely sustaining the selloff in dollar-Canada for the time being, George Davis, chief technical analyst at Royal Bank of Canada in Toronto, wrote in a note to clients. Davis recommends watching the relationship between the S&P 500 Index and the Canadian dollar, suggesting a retracement in one factor would lead to a weakening of the other.

Relative Strength

The seven-day relative strength index for the loonie increased to 88.5, the highest since July 2009. A reading above 70 indicates the currency may fall.

The Canadian dollar was the sixth-best performer against the greenback today among its 16 most-traded counterparts tracked by Bloomberg. The South African rand and New Zealand and Australian dollars, currencies that also are linked to commodities, were among the top five performers as expectations of low interest rates in the U.S. spurred demand for higher- yielding assets. The Mexican peso and British pound were the other top performers.

The loonie gained on March 2 after the Bank of Canada said inflation and economic output were higher than it expected, signaling policy makers are moving closer to increasing the 0.25 percent target lending rate. The central bank will raise its key overnight rate to 2.25 percent by the middle of next year, according to the weighted average of economist estimates in a Bloomberg News survey.

Canadas dollar rose to par with the greenback in September 2007 for the first time in three decades amid booming demand for raw materials. It was last at parity on July 22, 2008, and then lost 18 percent that year as the credit crisis crushed demand for commodities.

Remains Blue-Skied

For the loonie, the outlook remains blue-skied on a number of Canadian-dollar-positive factors, Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, wrote in a note to clients. He cited higher-than- forecast wholesale sales data, crude oil prices and benign acquiescence from the finance minister and the central bank governor on the strength of the currency.

Wholesale sales increased 3 percent in January to C$44.4 billion ($43.8 billion, the fastest pace in three years, as automobiles led gains in every major category tracked by the government, Statistics Canada said in Ottawa today. A gain of 0.5 percent was forecast by economists in a Bloomberg survey.

The nations consumer price index expanded 0.3 percent in February, 19 economists in another Bloomberg survey forecast before the government releases the data on March 19.

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Chris Fournier in Montreal at cfournier3@bloomberg.net