Canadian dollar strengthens on NAFTA trade deal optimism

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Tuesday as oil prices jumped and investors grew more optimistic of a deal to renew the NAFTA trade pact.

Canadian Foreign Minister Chrystia Freeland returned to Washington for talks aimed at rescuing the North American Free Trade Agreement. She said discussions between U.S. and Canadian negotiating teams over the weekend were "constructive and productive."

"I think (there is) a fair bit of optimism on the NAFTA talks," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York. "(Talks) seem to be going well, at least from the little snippets we get from Freeland."

Canada sends about 75 percent of its exports to the United States, including autos and oil, so its economy could be hurt if a deal is not reached.

U.S. crude oil futures settled 2.5 percent higher at $69.25 a barrel, as U.S. sanctions squeezing Iranian crude exports tightened global supply.

At 3:15 p.m. (1915 GMT), the Canadian dollar was trading 0.3 percent higher at C$1.3130 to the greenback, or 76.16 U.S. cents.

The currency, which had touched on Thursday its weakest in nearly seven weeks at C$1.3226, traded in a range of C$1.3124 to C$1.3175.

The modest gain for the loonie came as stocks on Wall Street were able to shake off concerns over the trade dispute between Washington and Beijing and move higher.

In domestic data, housing starts declined to a seasonally adjusted annualized rate of 200,986 units from a revised 205,751 units in July, data from the Canada Mortgage and Housing Corporation showed. Economists expected starts to rise to 210,300 homes.

Canadian government bond prices were lower across a steeper yield curve in sympathy with U.S. Treasuries as the supply of U.S. bonds weighed on prices.

The Canadian 10-year declined 33 Canadian cents to yield 2.325 percent. The 10-year yield touched its highest intraday since Aug. 29 at 2.329 percent.

(Reporting by Fergal Smith; Editing by Susan Thomas and Meredith Mazzilli)