The loonie gained 0.02 of a cent to 88.95 cents US.
Janet Yellen, chairwoman of the U.S. central bank, signalled Wednesday that the Fed could begin raising short-term rates six months after it halts its bond purchases around year’s end.
The Fed has been cutting back on those purchases, a key element of stimulus that has kept long-term rates low, and said Wednesday that it would further taper purchases by another US$10 billion a month to $55 billion.
Putting added pressure on the loonie were comments earlier in the week by the governor of the Bank of Canada that interest rate hikes in Canada could be further away than thought.
Stephen Poloz said that slower than normal growth may be the new norm. And he said those conditions will require central bankers to keep interest rates low for longer than they would have in the past. And, he added that a rate cut by the Bank of Canada could not be ruled out.
"The combination of a more dovish governor Poloz and a less dovish chair Yellen is a powerful near-term negative weight for the Canadian dollar," said Camilla Sutton, chief FX strategist for Scotiabank.
"The events over the last few days risk that Canadian dollar weakness is more pronounced for longer before the currency stabilizes," Sutton said.
The loonie has tumbled more than 5.5 per cent so far this year.
The Canadian currency improved from the lows of the session after a couple of reports helped persuade traders that the U.S. economy can withstand a hike in rates next year.
The Philadelphia Fed's manufacturing index rebounded to 9.0 in March from a negative 6.3 reading in February, well above expectations for a reading of 3.5.
Also, the Conference Board’s leading indicator index, an indicator of future economic performance, increased 0.5 per cent in February, the largest amount in three months, following a slight 0.1 per cent rise in January.
Both reports were indicative that any weather-related problems the U.S. economy is experiencing now will be short-lived.
Falling commodities also weighed on the Canadian currency.
Hopes that the Ukraine crisis won't worsen weakened bullion prices for a fourth day and the April contract lost $10.80 to US$1,330.50 an ounce.
Oil prices declined with the April contract, which expires Thursday, down 94 cents to US$99.43 a barrel. Most trading has moved to the May contract, which was down 27 cents at US$98.90 a barrel.
Nervousness about Chinese growth continued to pummel copper prices with the May contract falling six cents to US$2.93 a pound, but the base metals sector turned around and was up 0.2 per cent. The metal has tumbled more than nine per cent since March 6.
There have been worries that commodity financing deals in China could unravel, resulting in widespread metals liquidation.
And on Thursday, Goldman Sachs lowered its 2014 gross domestic product forecast for China to 7.3 per cent from 7.6 per cent.