Canadian dollar nears three-month high on NAFTA trade deal prospects

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto, Ontario, Canada, January 23, 2015. REUTERS/Mark Blinch/File Photo

TORONTO (Reuters) - The Canadian dollar strengthened to a nearly three-month high against its U.S. counterpart on Tuesday as investors bet that Canada will reach a deal with the United States and Mexico to overhaul the North American Free Trade Agreement.

Canada’s top trade negotiator is joining her Mexican and U.S. counterparts in Washington in a bid to remain part of a revamped trilateral North American trade pact, as U.S. officials expressed optimism a deal could be reached this week.

“The market is signaling that a deal is at hand,” said Adam Button, currency analyst at ForexLive. “Canada has been strong armed into an agreement but at the end of the day a deal is better than no deal.”

Canada sends about 75 percent of its exports to the United States so its economy could benefit if talks with the United States and Mexico lead to a trilateral trade deal.

At 3:33 p.m. (1933 GMT), the Canadian dollar CAD=D4 was trading 0.2 percent higher at C$1.2935 to the greenback, or 77.31 U.S. cents. The currency touched its strongest since June 6 at C$1.2887.

The price of oil, one of Canada's major exports, fell as some investors took profits on recent strong gains. U.S. crude oil futures CLc1 settled 0.5 percent lower at $68.53 a barrel.

Canadian government bond prices were lower across a steeper yield curve, with the two-year CA2YT=RR down 1 Canadian cent to yield 2.145 percent and the 10-year CA10YT=RR falling 16 Canadian cents to yield 2.316 percent.

Canada’s gross domestic product data for the second quarter is due on Thursday.

Reporting by Fergal Smith; Editing by Susan Thomas and David Gregorio