The loonie was up 0.06 of a cent to 78.25 cents after plunging over a cent last week to six-year lows amid a sharp retracement in oil prices and weaker than expected jobs data.
The Fed interest rate meeting Wednesday takes place as traders speculate when the central bank may move rates away from near zero. A raft of positive economic news has persuaded many that the Fed will drop key language in its announcement that has said it would be "patient" in deciding when to hike rates. At the earliest, markets generally don't expect the Fed to move before June.
Meanwhile, Chinese Premier Li Keqiang was quoted by official news agency Xinhua as saying policy-makers have "fairly ample room" and a "host of policy instruments" to boost economic growth if it slows more than expected. The government has lowered China's official economic growth to seven per cent from last year's 7.5 per cent and has promised to maintain employment levels, fight corruption and curb pollution.
On the commodity markets, oil prices hit year-to-date lows after the International Energy Agency said the recent stability in prices around the $50 mark was likely premature and that it might be overly optimistic to expect the rebalancing triggered by the collapse in prices to proceed smoothly.
Also rattling oil markets are concerns that crude inventories are at multi year highs while storage space is running out.
On Monday, the April crude contract on the New York Mercantile Exchange lost 96 cents to US$43.88 after falling almost 10 per cent last week.
The April gold contract rose 80 cents to US$1,153.20 an ounce while the May copper contract was unchanged at US$2.66 a pound.
Traders also looked to major economic data coming out this week. Manufacturing shipments data will be released Tuesday, while Statistics Canada will post the January reading on retail sales and the consumer price index for February on Friday.