Canadian dollar weakens as higher bond yields boost greenback

TORONTO: The Canadian dollar weakened against its US counterpart on Wednesday as the greenback broadly rallied and domestic data showed underlying inflation holding well below the Bank of Canada's 2% target.

The Canadian dollar was trading 0.3% lower at 1.2726 to the greenback, or 78.58 US cents, having traded in a range of 1.2685 to 1.2745. On Tuesday, it touched its strongest intraday level in nearly four weeks at 1.2606.

The US dollar rallied against a basket of major currencies as US bond yields jumped on the prospects of further economic recovery and a possible acceleration in inflation.

Canada's annual inflation rate in January accelerated to 1.0% from 0.7% the previous month, Statistics Canada said.

The average of the Bank of Canada's three core measures nudged up to 1.5% from 1.4% after a sharp downward revision to December's reading for the median.

"The BoC has maintained their commitment to maintain accommodative policy for an extended period of time," said Ryan Brecht, a senior economist at Action Economics. "This report is consistent with their policy pledge."

The price of oil, one of Canada's major exports, fell 0.3% to $59.88 a barrel but held close to its highest level in more than one year. Crude has been underpinned this week by a major supply disruption in the southern United States.

Canada's 10-year yield eased 2 basis points to 1.106%, pulling back from 1.149% earlier in the session, which was its highest since March last year.