By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened to a two-year low against its U.S. counterpart on Friday as the greenback notched broad-based gains ahead of the U.S. presidential election and despite domestic data that showed factory activity growing at a faster pace.

The loonie was trading 0.1% lower at 1.3950 to the U.S. dollar, or 71.68 U.S. cents, after touching its weakest intraday level since October 2022 at 1.3953. For the week, the currency was down 0.4%.

"This looks to be a play with U.S. dollar bulls wanting to push this thing (USD-CAD) to the topside should the election result suggest it should go in that direction," said Michael Goshko, senior market analyst at Convera Canada ULC.

The loonie is expected to rebound against its U.S. counterpart in the coming year as lower borrowing costs boost the domestic economy but the result of Tuesday's election could unsettle the outlook, a Reuters poll found.

Republican candidate Donald Trump has proposed sweeping tariffs on imported goods. Canada sends about 75% of its exports to the United States.

Analysts say that tariffs and other proposed measures could boost U.S. inflation, reducing prospects of Federal Reserve interest rate cuts. The U.S. dollar strengthened on Friday against a basket of major currencies.

The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) rose to its highest level in 20 months at 51.1 in October as production and employment picked up in anticipation of rising orders.

The price of oil, one of Canada's major exports, increased 0.6% to $69.68 a barrel on reports Iran was preparing a retaliatory strike on Israel from Iraq in the coming days.

Canadian bond yields moved higher across a steeper curve, tracking moves in U.S. Treasuries, as investors looked past a weaker-than-expected U.S. jobs report. The 10-year was up 6.1 basis points at 3.283%.

(Reporting by Fergal Smith; Editing by Sandra Maler)