TORONTO – The Canadian dollar advanced Wednesday amid optimism that an agreement on raising the U.S. debt limit can be reached sometime during the day and data showing a drop in manufacturing shipments.

The loonie gained 0.08 of a cent to 96.42 cents US as Statistics Canada reported manufacturing sales edged down 0.2 per cent to $49.5 billion in August, following three months of gains. The showing was essentially in line with economists’ forecasts.

Meanwhile, traders looked to the Oct. 17 deadline when the U.S. government would lose its ability to borrow and will be required to meet its obligations by relying on cash in hand and incoming tax receipts.

Democrat Senate Majority Leader Harry Reid and Republican Minority Leader Mitch McConnell were hoping to come to an agreement later Wednesday to raise the debt ceiling and end a partial government shutdown and, if possible, hold votes later in the day.

Negotiations between the two Senate leaders resumed after House of Representatives Speaker John Boehner tried to write legislation that would satisfy GOP lawmakers, especially conservatives. He crafted two versions of the bill, but neither made it to a House vote because both faced certain defeat.

Threats of a downgrade to U.S. debt also provided added incentive to get a deal done.

Ratings agency Fitch warned after the close Tuesday that it was reviewing Washington’s AAA credit rating for a possible downgrade, though no action was near. The firm, one of the three leading U.S. credit-ratings agencies, said that “the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default.”

“Rating agencies are growing increasingly nervous, highlighted by Fitch’s decision to put the U.S. sovereign rating on credit watch negative,” said Scotia Capital chief currency strategist Camilla Sutton.

“The decision was based on the potential eroding of the faith of U.S. credit and suggests the import role confidence plays for rating agencies.”

Commodities were mixed with the November crude contract on the New York Mercantile Exchange off 17 cents to US$101.04 a barrel after closing Tuesday at its lowest level since early July.

December copper on the Nymex dropped three cents to US$3.28 a pound while December gold bullion in New York gained $5.50 to US$1,278.70 an ounce.