Canadian dollar nears three-week high; pares gains ahead of NAFTA trade talks

TORONTO (Reuters) - The Canadian dollar strengthened to its highest in nearly three weeks against its U.S. counterpart on Wednesday, before paring most of its gains ahead of further talks to revamp the NAFTA trade pact.

FILE PHOTO: A Canadian dollar coin, commonly called a "Loonie" and an American dollar bill are seen in this staged photo in Toronto, March 17, 2010. REUTERS/Mark Blinch/File Photo

Canadian Foreign Minister Chrystia Freeland is due to hold fresh talks on the North American Free Trade Agreement with U.S. Trade Representative Robert Lighthizer in Washington as a U.S.-imposed deadline of Oct. 1 looms.

Canada sends about 75 percent of its exports to the United States and runs a current account deficit, so its economy could be hurt if a deal on NAFTA is not reached, or by an escalating trade dispute between the United States and China.

Bets that the U.S.-China trade spat would inflict less damage than feared helped boost global equities for a second straight day.

At 9:02 a.m. (1302 GMT), the Canadian dollar CAD=D4 was trading 0.1 percent higher at 1.2966 to the greenback, or 77.12 U.S. cents. The currency touched its strongest since Aug. 30 at 1.2934.

The near three-week high for the Canadian dollar came after stronger-than-expected domestic manufacturing data on Tuesday supported prospects for another Bank of Canada interest rate hike next month.

Also supportive of the loonie was recent strength in the price of oil, one of Canada’s major exports.

U.S. crude oil futures CLc1 rose 0.1 percent to $69.93, holding near its highest level over the last two months, as concerns producers may fail to cover a supply shortfall once U.S. sanctions on Iran come into force outweighed an increase in U.S. inventories.

Canadian government bond prices edged lower across the yield curve in sympathy with U.S. Treasuries. The 10-year CA10YT=RR dipped 2 Canadian cents to yield 2.390 percent, its highest since May 25.

Canada’s inflation report for August and July retail sales data are due on Friday.

Reporting by Fergal Smith; Editing by Bernadette Baum