By Fergal Smith
TORONTO (Reuters) - The Canadian dollar rose to an eight-week high against its U.S. counterpart on Tuesday, but gains were capped as the greenback was supported by geopolitical jitters and investors waited for a key domestic inflation report.
The loonie was trading 0.3% higher at 1.3268 to the greenback, or 75.37 U.S. cents, after touching its strongest since Sept. 20 at 1.3227.
The safe-haven U.S. dollar pared losses following reports that Russian missiles had hit Poland.
Earlier, data showed U.S. producer prices increased less than expected in October, providing further evidence that inflation was starting to subside.
"The overall take is that a soft landing still seems possible," Edward Moya, senior market analyst at OANDA in New York, said in a note.
Canada's inflation data for October is awaited by investors on Wednesday for clues as to whether the Bank of Canada would raise interest rates by 25 or 50 basis points at its next policy announcement on Dec. 7.
The central bank tightened rates by 50 basis points to a 14-year high of 3.75%, but it has opened the door to a smaller hike.
Canadian wholesale trade increased 0.1% in September from August, beating expectations for a 0.2% decline. Separate data showed manufacturing sales were unchanged in September from August, an outcome that was also stronger than expected.
The price of oil, one of Canada's major exports, settled 1.2% higher at $86.92 a barrel after news that oil supply to Hungary via the Druzhba oil pipeline has been temporarily suspended due to a fall in pressure.
Canadian bond yields were mixed across the curve even as U.S. Treasury yields fell. The 10-year was little changed at 3.156%.
(Reporting by Fergal Smith; editing by Jonathan Oatis and Richard Chang)