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The Canadian dollar weakened to a 1-1/2 year low against the greenback on Wednesday as investors slashed expectations for further interest rate hikes from the Bank of Canada after a dovish announcement from the central bank.

The Bank of Canada kept its benchmark interest rate on hold at 1.75 per cent, as expected, and said there might be more room for non-inflationary growth, suggesting the pace of future hikes could be more gradual.

“From where we were last time out, things are a little bit more dovish in tone, and, not surprisingly we’ve seen the Canadian dollar weaken in the wake of that,” said Michael Gregory, a senior economist at BMO Capital Markets.

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Chances of a hike in January slumped from about 60 per cent before the data to 35 per cent, the overnight index swaps market indicated.

At 3:39 p.m., the Canadian dollar was trading 0.8 per cent lower at 1.3377 to the greenback, or 74.76 U.S. cents. The currency touched its weakest since June 2017 at 1.3400.

The loonie weakened as global stocks were pressured by renewed worries about trade tensions and as the U.S. dollar

strengthened against a basket of major currencies.

The price of oil, one of Canada’s major exports, weakened ahead of a meeting of the world’s biggest exporters which will discuss cutting output to help shore up prices and curb excess supply.

U.S. crude oil futures settled 0.7 per cent lower at $52.89 a barrel.

Alberta’s decision to mandate output cuts to reduce a glut will hurt North American producers of lighter oil used for blending and U.S. refiners importing crude via rail, even as several major Canadian energy companies cheered the move.

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Canadian government bond prices rose across the yield curve, with the two-year up 12.5 cents to yield 2.051 per cent and the 10-year rising 43 cents to yield 2.120 per cent.

The 10-year yield hit its lowest intraday level since July 19 at 2.118 per cent.

U.S. markets were closed on Wednesday to honour former U.S. President George H.W. Bush, who died last Friday.

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