TORONTO: The Canadian dollar gained ground against its broadly weaker US counterpart on Tuesday as oil prices rose and domestic data showed further recovery in factory shipments, but the move was restrained ahead of a Federal Reserve policy decision this week.

Canadian factory sales rose for the third straight month in July, adding to evidence of economic recovery from the coronavirus pandemic. Sales were up by 7.0% from June on higher motor vehicle sales, as well as petroleum and coal, Statistics Canada said.

Separate data, from the Canadian Real Estate Association, showed that home sales increased 6.2% in August to reach a record high.

The loonie was trading 0.2% higher at 1.3150 to the greenback, or 76.05 US cents. The currency traded in a range of 1.3134 to 1.3186.

The US dollar fell against a basket of major currencies as data showing an acceleration in China's industrial output helped boost risky currencies, with the yuan strengthening to a 16-month high.

The Fed starts a two-day policy meeting on Tuesday, the first since unveiling a landmark shift to a more tolerant stance on inflation in August.

The price of oil, one of Canada's major exports, rose despite forecasts of a slower than expected recovery in global fuel demand due to the coronavirus pandemic. US crude prices were up 0.6% at $37.48 a barrel.

Canada's inflation report for August is due on Wednesday, while the July retail sales report is set for Friday.

Canadian government bond yields were higher across the curve in sympathy with US Treasuries. The 10-year was up nearly 1 basis point at 0.563%.

Canada will announce on Tuesday that it is going ahead with a threat to slap retaliatory tariffs on US goods, a Canadian television network said on Monday.