The Canadian dollar strengthened against its U.S. counterpart on Tuesday, breaking a string of six straight losing trading days, as investors turned their attention to a Bank of Canada interest rate decision on Wednesday while fears on trade lingered.
At 4 p.m. EST (2100 GMT), the Canadian dollar was trading 0.6 per cent stronger at $1.2886 to the greenback, or 77.60 U.S. cents, its first advance since Feb. 23.
The loonie traded in a range of $1.2865 to $1.2995. On Monday, it touched its weakest since July 5 at $1.3002.
"A lot depends on how the Bank of Canada characterizes their view on the outlook tomorrow," said Eric Theoret, a currency strategist at Scotiabank. "Ultimately, nothing fundamentally has changed, with the exception of these potential threats."
U.S. President Donald Trump has appeared to tie possible exemptions for Canada and Mexico from proposed tariffs on steel and aluminum to a "new" North American Free Trade Agreement as well as other steps.
The Bank of Canada has said that uncertainty about the future of NAFTA is weighing increasingly on the outlook for Canada's economy.
The central bank has raised interest rates three times since July but is expected to leave its benchmark interest rate on hold at 1.25 per cent on Wednesday.
The U.S. dollar index fell to a one-week low as traders piled back into riskier currencies after an agreement between North and South Korea to hold direct talks.
The price of oil , one of Canada's major exports, edged higher and global stocks rose as Republican U.S. lawmakers stepped up calls for Trump to pull back from the proposed metals tariffs.
The pace of purchasing activity in Canada picked up in February, according to Ivey Purchasing Managers Index data.
Domestic trade data for January is due on Wednesday and the February employment report is due on Friday.
Canadian government bond prices were lower across the yield curve, with the two-year down 5 Canadian cents to yield 1.776 per cent and the 10-year falling 30 Canadian cents to yield 2.232 per cent.
On Monday, the 10-year yield touched its lowest intraday in nearly two months 2.145 per cent.