Canadian dollar holds on to gains on NAFTA trade deal optimism

TORONTO (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Wednesday to keep hold of this week’s gains as investors remained optimistic that Canada would secure a deal on a revamped NAFTA trade pact.

FILE PHOTO: A Canada Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration/File Photo

Canada said a deal to salvage the trilateral North American Free Trade Agreement (NAFTA) is possible by a Friday deadline, but it will be hard work to resolve specific issues as talks with the United States entered a second day.

“There is some modest confidence in the prospect of a deal ahead of Friday,” said Eric Theoret, a currency strategist at Scotiabank. “I think the market is taking a wait and see approach and not ready to commit at this time.”

Canada sends about 75 percent of its exports to the United States, so its economy could benefit if a trilateral trade deal with the U.S. and Mexico is reached.

At 2:42 p.m. (1842 GMT), the Canadian dollar CAD=D4 was trading 0.1 percent higher at C$1.2923 to the greenback, or 77.38 U.S. cents. The currency, which notched a nearly three-month high on Tuesday at C$1.2887, traded in a range of C$1.2904 to C$1.2966.

The modest gain for the loonie came ahead of Canadian gross domestic product data on Thursday that could help guide expectations for another interest rate hike from the Bank of Canada as soon as next week. BOCWATCH

The central bank has hiked four times since July 2017 to leave its policy rate at 1.50 percent.

Data from Statistics Canada showed on Wednesday that the country’s current account deficit narrowed to C$15.9 billion in the second quarter from a revised C$17.5 billion gap in the first quarter.

The price of oil, one of Canada’s major exports, was supported by a drawdown in U.S. crude and gasoline stockpiles and on news of falling Iranian crude shipments as U.S. sanctions deter buyers.

U.S. crude oil futures CLc1 settled 1.4 percent higher at $69.51 a barrel.

Canadian government bond prices were higher across the yield curve, with the two-year CA2YT=RR up 1.5 Canadian cents to yield 2.14 percent and the 10-year CA10YT=RR rising 5 Canadian cents to yield 2.315 percent.

Reporting by Fergal Smith; Editing by Chizu Nomiyama and Susan Thomas