The loonie advanced 0.10 of a cent to 90.44 cents US.
Timothy Lane, the central bank's deputy governor, cautioned that the Canadian currency was at risk once the Fed concludes its monetary stimulus policy, put in place to help with the economic recovery south of the border.
Last week, the U.S. central bank said it was making another $10-billion cut to the pace of its monthly bond purchases, which have fuelled stock markets and kept long-term borrowing rates low. The program is slated to wind up at the end of October.
Lane said that although the Fed's actions will create some risk for Canada, the country's economy is strong enough to withstand the changes.
"The Fed’s unconventional monetary policies affected Canada through various channels, notably by pushing down market interest rates worldwide," he said in a speech at Carleton University in Ottawa.
"By the same token, as Fed policy returns to normal — which is likely to be a different state than before the crisis — that will tighten financial conditions in Canada. But this will be happening against the backdrop of stronger economic growth."
Lane's speech follows comments Monday by senior deputy governor Carolyn Wilkins, who cautioned that "persistent headwinds" still exist in Canada's economic recovery, and that could mean stimulus will need to continue for some time to keep inflation on target.
Meanwhile, in the U.S., there continued to signs that the economy is gaining strength. The U.S. Commerce Department reported that new home sales surged 18 per cent in August to a seasonally adjusted annual rate of 504,000. Analysts had been expecting a rate of 450,000.
Investors are still digesting this week's mixed manufacturing data from Europe and China.
Business confidence in Germany, Europe's largest economy, dropped for the fifth consecutive month — continuing a slide that has been fuelled, among other things, by turmoil in Ukraine and sluggish overall growth in Europe. The Ifo institute says its confidence index dropped to 104.7 points for September from 106.3 last month.
On Tuesday, financial information company Markit said its purchasing managers' index for the eurozone — a closely watched gauge of business activity — fell to a nine-month low of 52.3 in September from the previous month's 52.5.
HSBC's latest purchasing managers' index for China edged up to 50.5 this month from 50.2 in August, based on a 100-point scale on which numbers below 50 indicate a contraction in manufacturing orders. The figures came in ahead of analysts' expectations, which anticipated that the reading would fall for a second month. Still, August's PMI reading was a sharp decline from the 18-month high of 51.7 in July.
Commodities were relatively flat, as December gold declined $2.50 to US$1,219.50 an ounce, while the November crude contract rose by $1.24 to US$92.80 a barrel. December copper added two cents to US$3.05 a pound.
Follow @LindaNguyenTO on TwitterSuggest a correction