TORONTO — Expectations that Canada will reach a trade deal with the U.S. and Mexico pushed the loonie to a nearly three-month high Tuesday and caused bond yields to rise.

The Canadian dollar traded up at 77.42 cents US compared with an average of 77.01 cents US on Monday.

That’s the highest level since early June.

The currency’s movement came a day after North American markets rose on the announcement of a preliminary trade accord between the U.S. and Mexico.

“You had the equity reaction yesterday, you have a kind of continuation on the currency and bond reaction today,” said Patrick Bernes, a portfolio manager for CIBC Asset Management.

He said markets are anticipating that NAFTA negotiations will move to the final phase where Canada and the U.S. would settle bilateral issues and then all three countries would resolve multilateral items.

The U.S. backed off in the Mexican deal on a key sticking point for Canada — a five-year sunset clause — by agreeing to a 16-year deal with the possibility of occasional updates.

U.S. President Donald Trump also put pressure on Canada by threatening to slap 25 per cent tariffs on automobile imports.

“But this just looks to me like negotiations tactics to pressure the Canadians and the reaction in currency markets both yesterday and today indicate to me that the market sees the process nearing completion and uncertainty is diminishing on the hopes of a multilateral deal,” Bernes said in an interview.

The positive tone of Prime Minister Justin Trudeau’s comments Tuesday despite his defiance on dairy supply management suggests that Canada will ultimately provide the Americans with the same cut of the Canadian dairy market as it agreed to in the Trans-Pacific Partnership deal, he said.

The agreement gives TPP countries access to 3.25 per cent annually of Canada’s dairy market. Dairy producers in the Pacific Rim pact would displace the U.S. after it withdrew from the agreement.

The S&P/TSX composite index decreased on weakness in materials and energy sectors as commodities took a hit, in part from the appreciating loonie. The two sectors were down about one per cent, surpassed by gold and healthcare that were off two and 4.15 per cent respectively.

Cannabis stocks Aurora Cannabis Inc., Canopy Growth Corp. and Aphria Inc. were down as much as 7.7 per cent after enjoying several days of large increases.

Real estate, consumer discretionary, base metals and information technology sectors closed in positive territory. The others were off by less than one per cent.

American markets were virtually flat.

In New York, the Dow Jones industrial average was up 14.38 points at 26,064.02. The S&P 500 index surpassed 2,900 for the first time but closed up less than a point to 2,897.52. The Nasdaq composite also peaked and was up 12.14 points on the day at 8,030.04.

The October crude contract was down 34 cents at US$68.53 per barrel and the October natural gas contract was down 2.4 cents at US$2.85 per mmBTU.

The December gold contract was down $1.60 at US$1,214.40 an ounce and the September copper contract was up 2.75 cents at US$2.74 a pound.