TORONTO: The Canadian dollar weakened against its US counterpart on Wednesday as a sharp drop in oil prices worked against domestic inflation data that bolstered bets for a super-sized interest rate hike by the Bank of Canada next month.

Canada’s annual inflation rate unexpectedly accelerated to 7.7% in May, the highest since January 1983, largely driven by higher gasoline prices, while the average of the Bank of Canada’s three core measures rose to 4.7% from an upwardly revised 4.4%. The central bank has vowed to tame price pressures. Money markets see about an 80% chance of a three-quarter-percentage-point rate increase at the BoC’s next policy announcement on July 13, which would be the biggest hike in 24 years.

“The reaction in the loonie was limited ... as commodities act as a counterbalance to the hawkish repricing in money markets,” said Jay Zhao-Murray, a market analyst at Monex Canada.

The price of oil, one of Canada’s major exports, and equities globally hit the skids as the persistent palpitations about rising interest rates and recessions struck again.

US crude prices fell 6.8% to $102.05 a barrel, while the Canadian dollar was trading 0.3% lower at 1.2962 to the greenback, or 77.15 US cents. It traded in a range of 1.2918 to 1.2996.

Canadian government bond yields were lower across a flatter curve, tracking the move in US Treasuries. The 10-year fell 10 basis points to 3.40%.