C$ retreats from 7-month high as inflation cools, greenback rallies

TORONTO: The Canadian dollar fell against its US counterpart on Wednesday as the greenback broadly rebounded and a cooling of domestic inflation supported expectations for the Bank of Canada to leave interest rates near zero until at least 2022.

The loonie weakened 0.3% to 1.3213 to the greenback, or 75.68 US cents, pulling back from its strongest intraday level since Jan. 24 at 1.3131.

Canada's annual inflation rate fell to 0.1% in July, Statistics Canada said, which was less than the 0.5% rate that analysts had expected.

The data supports "the BoC's very accommodative policy and forward guidance," said Ryan Brecht, a senior economist at Action Economics.

Money markets see little chance that the Bank of Canada will raise its benchmark interest rate, which sits at 0.25%, this year or next. The central bank has expanded its balance sheet as a share of GDP this year by more than the Federal Reserve.

The US dollar rebounded from a two-year low against a basket of major currencies after the release of minutes from the Fed's last policy meeting that were not as dovish as some investors anticipated.

"The market expected signs that a dovish shift in forward guidance from the Fed would occur soon," strategists at Action Economics said.

Separate data from Statistics Canada showed that Canadian wholesale trade increased by a record 18.5% in June from May as the economy reopened.

A staggered reopening from lockdowns, supported by fiscal stimulus, is likely paying off for Canada's economy, with activity forecast to rebound in the current quarter twice as fast as in the United States, its biggest trading partner by far.

Oil, one of Canada's largest exports, settled 0.1% lower at $42.93 a barrel.

Canadian government bond yields rose across a steeper curve, with the 10-year up 1.8 basis points at 0.583%.