Canada's dollar strengthened to a 13-month high versus its U.S. counterpart, on optimism measures by policy makers in the U.S. and Europe will reduce volatility.

The currency gained for a fourth day as the Federal Reserve prepares to begin a two-day policy meeting where investors anticipate it will announce a third round of bond buying, known as quantitative easing, to spur the economy. A German court cleared the way for a ruling tomorrow on a European bailout plan. The anticipated price swings versus the U.S. dollar were almost the lowest in five years, according to options pricing.

The loonie rose 0.5 percent to 97.32 cents per dollar at 4:15 p.m. in New York. It touched 97.14 cents, the highest since Aug. 4, 2011. One Canadian dollar buys $1.0275.

"The movement we've seen in the Canadian dollar, we're a little suspicious of it because it seems to be part and parcel with the theory that more global stimulus is coming and therefore the market rallies," said David Madani, an economist at Capital Economics Canada in Toronto. "Global monetary policy makers are trying to pull out all the stops right now."

Crude oil futures rose 0.4 percent to $96.94 a barrel in New York, for a fifth day of gains. Oil is the nation's largest export.

"The important thing for the Canadian dollar is that central-bank policy has removed tail risk and crushed volatility," Camilla Sutton, head of currency strategy at Bank of Nova Scotia (BNS) in Toronto, said in a phone interview. "The loonie has a bias today to be higher and it’s a hard trend to fight."

Gains in the currency were limited after the nation's trade deficit unexpectedly widened due to plunging exports of crude petroleum.