The Canadian dollar strengthened against its U.S. counterpart on Tuesday, with the currency recovering from an earlier three-week low as oil prices climbed and investors weighed prospects for the North American Free Trade Agreement (NAFTA).
Prices of oil rose as traders looked ahead to a meeting next week at which major crude exporters are expected to extend production cuts. U.S. crude prices settled 0.7 per cent higher at US$56.83 a barrel.
Traders also keyed off NAFTA headlines, said David Bradley, director of foreign exchange trading at Scotiabank. Activity was lighter than usual ahead of the U.S. Thanksgiving holiday on Thursday, Bradley added.
Mexico formally proposed that the NAFTA trade deal allow for a structured review of the accord every five years, instead of terminating the deal automatically if it is not renegotiated, as the United States has demanded, three Mexican officials said.
The loonie has been pressured recently by concern that an uncertain outlook for NAFTA will stall Bank of Canada interest rate hikes.
At 4 p.m. ET, the Canadian dollar was up 0.3 per cent at $1.2785 to the greenback, or 78.22 cents US. The currency's strongest level of the session was $1.2749, while it touched its weakest since Nov. 2 at $1.2837.
The loonie gained ground on Tuesday despite weaker-than-expected domestic data.
Canadian wholesale trade fell by 1.2 per cent in September from August. Analysts had forecast a 0.3 per cent increase.
Investors were awaiting a speech by Federal Reserve Chair Janet Yellen later on Tuesday. Minutes from the Fed's November meeting will be released on Wednesday.
Canadian government bond prices were higher across a flatter yield curve, with the two-year up 1.5 cents to yield 1.465 per cent and the 10-year rising 29 cents to yield 1.920 per cent.
Canadian retail sales data for September is due on Thursday.