Kennedy joined City from the Lancashire club in the summer but he will now finish this season back at Spotland Stadium after completing the necessary paperwork on his loan deal this Friday.
The deal is subject to Rochdale receiving the relevant F.A and Football League clearances for the move.
The County Durham-born midfielder moved to the Bantams on a free transfer after four highly-successful years at Rochdale.
Following his loan move back to Rochdale now though, Kennedy will join up once again with former manager Keith Hill to try and help Dale's League 2 promotion push.
The 27-year old has made 11 appearances in total for Phil Parkinson's side this season but he has only started five league games so far.
Kennedy's move to Rochdale will see him stick with the same squad number 8 he was given by City at the start of the season.
After coming on as a second half substitute in City's F.A Cup First Round tie at Rotherham United, Kennedy will have to wait to make his second Rochdale debut, however, as he will be cup-tied for their fourth round tie at home to Sheffield Wednesday this Saturday.