TORONTO, Feb 3 (Reuters) - The Canadian dollar clawed back much of its decline against its U.S. counterpart on Monday as investors weighed the possibility of Canada achieving a reprieve from U.S. tariffs, with the currency rebounding from an earlier 22-year low.
The loonie was trading 0.5% lower at 1.4590 to the U.S. dollar, or 68.54 U.S. cents, after earlier tumbling to its weakest level since April 2003 at 1.4793.
U.S. President Donald Trump has paused new tariffs on Mexico for one month after Mexico agreed to reinforce its northern border with 10,000 National Guard members to stem the flow of illegal drugs, he said.
"The Mexican peso, Canadian dollar, and euro are ripping higher," Karl Schamotta, chief market strategist at Corpay, said in a note. "Markets are clearly bracing for a similar outcome" for Canada, he added.
Trump said he had spoken with Canadian Prime Minister Justin Trudeau and would do so again at 3 p.m. ET (2000 GMT).
However, Canada is not optimistic it can get the same kind of one-month reprieve from U.S. tariffs that was granted to Mexico, the New York Times cited a senior Canadian government official as saying on Monday.
On Saturday, the U.S. President ordered sweeping tariffs of 25% on goods from Mexico and Canada. The tariffs on Canada remain poised to take effect on Tuesday, while Trudeau has said Canada would respond with 25% tariffs against $155 billion of U.S. goods.
The Bank of Canada last week warned that a tariff war could cause major economic damage as it cut its benchmark interest rate by 25 basis points to 3%.
Investors see a roughly 80% chance that the central bank will ease again in March.
Canadian manufacturing activity increased at a slower pace in January as looming U.S. trade tariffs reduced confidence in the outlook, even as moves by clients to get ahead of the taxes led to the first increase in export orders in 17 months.
Canadian bond yields fell across the curve. The 10-year yield was down 13.6 basis points at 2.929%, after earlier touching its lowest since Sept. 18 at 2.879%.
Reporting by Fergal Smith in Toronto; Editing by Nia Williams
