TORONTO: The Canadian dollar edged lower against its broadly weaker U.S. counterpart on Tuesday as domestic data showed a likely drop in manufacturing sales in April, with the currency remaining capped by last week's 6-year high.

The loonie was trading 0.2pc lower at 1.2060 to the greenback, or 82.92 U.S. cents, the biggest decline among G10 currencies. Last Tuesday, it touched its strongest level since May 2015 at 1.2013, bolstered by higher commodity prices this year and the Bank of Canada's more hawkish stance.

Still, the current loss of momentum for the loonie could be temporary.

"We continue to target a deeper push below 1.20 in the coming months," strategists at Scotiabank, including Shaun Osborne, said in a note.

"There appears to be little concern at the central bank about the CAD and the message is clear that the central bank will keep policy settings aligned with the economy as it works toward its goals," the strategists said.

Canadian factory sales likely fell 1.1pc in April from March, giving back some of the previous month's increase, a flash estimate from Statistics Canada showed.

The U.S. dollar hit 4-1/2 month lows against a basket of peers as markets seemed to accept U.S. Federal Reserve arguments that monetary policy should stay easy because inflationary forces are broadly weak.

The price of oil, one of Canada's major exports, settled 2 cents higher at $66.07 a barrel, supported by rising demand from the approach of the Northern Hemisphere's summer driving season and lifting of coronavirus restrictions.

Canadian government bond yields were lower across a flatter curve.

The 10-year hit its lowest since May 7 at 1.478pc before edging up to 1.480pc, down 6.3 basis points on the day.