Canadian dollar dips as inflation data supports BoC's patient stance

TORONTO: The Canadian dollar edged lower against its US counterpart on Wednesday, pulling back from an earlier three-year high as oil fell and tamer-than-expected domestic inflation data supported the Bank of Canada's patient approach to raising interest rates.

Canada's annual inflation rate rose to 1.1% in February from 1.0% in January but below analysts estimates of 1.3%.

"The CPI report is consistent with steady, accommodative policy from the BoC for an extended period," said Ryan Brecht, a senior economist at Action Economics.

The central bank has signaled that its benchmark interest rate will be left at a record low of 0.25% until 2023, but money markets have been pricing in an earlier move and strategists expect the bank to cut its bond purchases next month.

The Canadian dollar was trading 0.2% lower at 1.2473 to the greenback, or 80.17 US cents, having touched its strongest intraday level since February 2018 at 1.2434.

The price of oil, one of Canada's major exports, slipped for a fourth day as concerns about weaker demand in Europe outweighed an industry report that showed US crude inventories unexpectedly fell last week.

US crude prices were down 0.7% at $64.34 a barrel.

Canadian government bond yields were higher across a steeper curve in sympathy with US Treasuries ahead of a Federal Reserve interest rate decision, with investors expecting the Fed to forecast the US economy will grow in 2021 at the fastest rate in decades.

The 10-year yield touched its highest since January 2020 at 1.633% before dipping to 1.616%, up 4.8 basis points on the day.