Investing.com - The U.S. dollar trimmed gains against its Canadian counterpart on Tuesday, despite data showing that Canada's economy contracted again in the second quarter, as renewed concerns over China weighed broadly on the greenback.
USD/CAD pulled back from 1.3234, the session high, to hit 1.3142 during early U.S. trade, steady for the day.
The pair was likely to find support at 1.3057, the low of August 21 and resistance at 1.3328, Monday's high.
Statistics Canada reported that gross domestic product contracted at an annualized 0.5% rate in the second quarter. While that was better than economists' forecast for a decline of 1.0% a revision showed the first quarter's contraction was 0.8%, steeper than initially estimated.
Two consecutive quarters of contraction marks a technical recession and the Bank of Canada has cut interest rates twice this year in a bid to shore up growth.
The economy grew 0.5% in June from a month earlier, beating expectations for a growth rate of 0.2%, after a contraction of 0.2% the previous month.
But the Canadian dollar's gains were limited by sharp losses in oil prices. Crude oil futures for October delivery plummeted 3.92% to $47.31 at the open of U.S. trading.
Meanwhile, the greenback remained under pressure after data on Tuesday showed that manufacturing activity in China contracted at its fastest rate in three years in August, while service sector activity also slowed.
China's official manufacturing purchasing managers' index fell to 49.7 in August from 50.0 in July. It was the lowest reading since August 2012, and fell below the 50-point level separating growth from contraction.
The weak data fueled fears over a worsening slowdown in the world’s second-largest economy.
The greenback has been pressured lower by fears that the recent turmoil in global financial markets will prompt the Federal Reserve to hold off on raising interest rates at its upcoming policy meeting later this month.
Investors were looking ahead to Friday’s U.S. jobs report for August, which could help to provide clarity on the likelihood of a near-term interest rate hike.
The U.S. was to release the Institute of Supply Management's report on manufacturing activity later in the day.
Meanwhile, the loonie was lower against the euro, with EUR/CAD rising 0.31% to 1.4812.