CANADA FX DEBT-Canadian dollar nears three-week low as trade deal uncertainty lingers

By Fergal Smith

TORONTO, Feb 24 (Reuters) - The Canadian dollar edged down to nearly a three-week low against its U.S. counterpart on Tuesday, as preliminary domestic data showed a drop in factory sales last month and investors worried about uncertain negotiations to renew a North American trade pact.

The loonie CAD= was trading 0.1% lower at 1.3702 per U.S. dollar, or 72.98 U.S. cents, after touching its weakest intraday level since February 6 at 1.3724.

"The Canadian dollar remains on the defensive despite avoiding steep tariff increases in the Trump administration's latest round," Karl Schamotta, chief market strategist at Corpay, said in a note.

"That likely reflects lingering uncertainty around USMCA negotiations, with traders braced for disruptive headlines even if the agreement ultimately survives."

The United States-Mexico-Canada Agreement, which has shielded much of Canada's exports from U.S. tariffs, is set for review by a July 1 deadline.

Domestic economic weakness could also be a headwind for the loonie, Schamotta said.

Canadian factory sales most likely fell 3.3% in January from December, largely driven by lower sales in the transportation equipment and machinery sub-sectors, a preliminary estimate showed.

The price of oil CLc1, one of Canada's major exports, was trading 0.8% lower at $65.81 a barrel as traders waited for news from nuclear talks between the U.S. and Iran.

Canadian government bond yields edged lower across the curve. The 10-year CA10YT=RR was down 1.4 basis points at 3.178%, after earlier touching its lowest level since December 1 at 3.173%.