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A Canadian dollar or loonie is pictured in North Vancouver, on March 5, 2014. (Jonathan Hayward/THE CANADIAN PRESS)
A Canadian dollar or loonie is pictured in North Vancouver, on March 5, 2014. (Jonathan Hayward/THE CANADIAN PRESS)

Loonie weakens as cooler inflation slams rate hike talk Add to ...

The Canadian dollar weakened on Friday against its U.S. counterpart as cooler-than-expected domestic inflation reduced pressure on the Bank of Canada to consider interest-rate hikes.

The annual rate fell to 1.6 per cent from the previous month’s 2.0 per cent, exceeding economists’ forecasts for a decline to 1.8 per cent. The three measures of core inflation put in place by the Bank of Canada last year remained tame.

“I just don’t see the talk of rate hikes any time soon as being credible,” said Derek Holt, head of capital markets economics at Scotiabank.

The implied probability of a Bank of Canada rate hike by year-end dipped to 23 per cent from 25 per cent before the report, data from the overnight index swaps market showed.

Earlier this month, the central bank dropped its dovish bias and said it was “decidedly neutral” even as it raised its growth forecast for 2017.

At 9:05 a.m. ET, the Canadian dollar was trading at $1.3492 to the greenback, or 74.12 U.S. cents, weaker than Thursday’s close of $1.3472, or 74.31 U.S. cents.

The currency traded in a range of $1.3459 to $1.3498.

On Thursday, the loonie touched its weakest in nearly six-weeks at $1.3500, pressured by a drop this week in the price of oil on doubts that an Organization of the Petroleum Exporting Countries-led production cut will restore balance to an oversupplied market. .

U.S. crude prices were down 0.06 per cent at $50.68 a barrel on Friday. Oil is one of Canada’s major exports.

Many currency pairs traded in a tight range as investors prepared for the first round on Sunday of a tight French presidential election race.

Canadian government bond prices were higher across much of the yield curve, with the 10-year rising 16 Canadian cents to yield 1.465 per cent.

The 10-year yield fell 0.9 of a basis point further below its U.S. equivalent to a spread of –76.8 basis points.

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