Canadian dollar turns lower as trade hopes boost greenback

TORONTO (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Tuesday, pulling back from an earlier six-day high as the greenback benefited from hopes the United States and China were moving closer to a trade deal.

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 3:14 p.m. (2014 GMT), the Canadian dollar CAD=D4 was trading 0.1% lower at 1.3157 to the greenback, or 76.01 U.S. cents. The currency's weakest level was 1.3178, while it touched its strongest since last Wednesday at 1.3116.

The U.S. dollar .DXY climbed against a basket of major currencies, including the safe-haven yen and Swiss franc, as increased appetite for risk spurred investors to seek higher-yielding currencies.

“The (U.S.) dollar is looking a bit cheap on our dashboard and we think this development on trade, incremental optimism there, pared with a rebound in ISM services is probably helping to fuel the dollar again,” said Mazen Issa, senior FX strategist at TD Securities.

Data from the Institute for Supply Management (ISM) showed that activity in the U.S. services sector picked up in October to a faster-than-expected pace.

Hopes for a U.S.-China trade deal also boosted the price of oil, one of Canada's major exports. U.S. crude oil futures CLc1 settled 1.2% higher at $57.23 a barrel.

Canada’s trade deficit narrowed in September to C$978 million, compared with a revised August deficit of C$1.24 billion, as imports declined more than the drop in exports, data from Statistics Canada showed.

Separate data from the Toronto Real Estate Board (TREB) showed that Toronto’s housing market tightened in October, with the average price rising 5.5% on a year-over-year basis.

Canadian government bond prices were lower across a steeper yield curve, with the two-year CA2YT=RR down 8 Canadian cents to yield 1.638% and the 10-year CA10YT=RR falling 74 Canadian cents to yield 1.608%.

The gap between Canada’s 2- and 10-year yields narrowed by 4 basis points to a spread of 3 basis points in favor of the shorter-dated bond, the narrowest gap since July 29.

Reporting by Fergal Smith; Editing by Paul Simao and Peter Cooney