Canadian dollar rebounds from one-week low as greenback falters

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Tuesday, recovering from an earlier one-week low after evidence the U.S.-China trade war was hurting U.S. manufacturing activity.

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

At 3:46 p.m. (1946 GMT), the Canadian dollar CAD=D4 was trading 0.2% higher at 1.3218 to the greenback, or 75.65 U.S. cents.

Earlier in the session, the loonie hit its weakest intraday level since Sept. 23 at 1.3290, after data showed that the domestic economy had stalled in July.

Canada’s economy was unchanged in July, following four straight months of growth, as the country’s mining, quarrying and oil and gas extraction sectors contracted, Statistics Canada data showed. Analysts had forecast an increase of 0.1%.

“The minor disappointment in July GDP moved the currency ... but the big mover was the 10 o’clock manufacturing ISM number out of the U.S.,” said Michael Goshko, corporate risk manager at Western Union Business Solutions.

The U.S. dollar .DXY declined against a basket of major currencies after data showed the U.S. manufacturing sector contracted in September to its weakest level in more than a decade as business conditions worsened amid U.S.-China trade tensions.

In contrast, Canadian manufacturing activity expanded in September at the fastest pace in seven months as new orders and production picked up, according to the IHS Markit Canada Manufacturing Purchasing Managers’ index.

“Our manufacturing number for September was a beat ... that would have added to the positive tone in Canada,” Goshko said.

The Bank of Canada has worried that the U.S.-China trade conflict is weighing more heavily on the global economy, but has showed no appetite for cutting rates amid steady domestic activity..

The price of oil, one of Canada's major exports, fell as weak U.S. economic data dimmed crude's demand outlook. U.S. crude oil futures CLc1 settled 0.8% lower at %53.62 a barrel.

Canadian government bond prices were higher across a steeper yield curve in sympathy with U.S. Treasuries. The two-year CA2YT=RR rose 8.5 Canadian cents to yield 1.533% and the 10-year CA10YT=RR was up 6 Canadian cents to yield 1.355%.

Reporting by Fergal Smith; Editing by Paul Simao and Tom Brown