Canadian dollar gains as Mideast optimism boosts risk appetite

TORONTO (Reuters) - The Canadian dollar strengthened against its US counterpart on Wednesday as rising expectations of a ceasefire in the Middle East conflict offset domestic data that showed stagnation in Canada's manufacturing sector.

The loonie was trading 0.2% higher at 1.3885 per US dollar, or 72.02 US cents, after moving in a range of 1.3873 to 1.3919. On Tuesday, the currency touched a near four-month low intraday at 1.3966.

The United States will end its ⁠war on Iran fairly soon and could return for "spot hits" if needed, President Donald Trump told Reuters, hours before he was scheduled to make a primetime address to the nation.

"There's optimism around the end of the war," said Adam Button, chief currency analyst at investingLive. "It's abundantly clear that the U.S. wants to wrap it up."

The safe-haven US dollar dropped for a second straight day against a basket of major currencies, while the price of oil, one of Canada's major exports, was trading 2.2% lower at $99.11 a barrel.

During the war, the threat of Iranian attacks has kept most ships ⁠from getting through the Strait of Hormuz, the conduit for around a fifth of global oil and liquefied natural gas supplies.

"I expect Canada to come out of this looking like a better destination for investment capital in oil and gas and ultimately that should be a major tailwind for the loonie, but ⁠not until the dust settles," Button said.

The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) fell to 50.0 last month from 51.0 in February, marking the lowest level in three months, as US tariffs and uncertainty linked to ⁠the war led to a decline in output and raised input costs.

The Bank of Canada's governing council has agreed it will have to rely on its own judgment more than usual on ⁠rate decisions, given heightened global uncertainty, minutes of deliberations leading to the central bank's policy decision on March 18 showed.