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The Canadian dollar edged higher against its U.S. counterpart on Wednesday as a rally in oil prices overshadowed domestic data showing a five-year low for inflation, with the loonie recovering from a near three-week low the day before.

The price of oil, one of Canada’s major exports, was bolstered by tentative discussions of additional supply cuts from OPEC producers and U.S. inventory builds that were less dire than some anticipated.

U.S. crude oil futures , which crashed on Monday to levels well below zero, settled 19.1 per cent higher at $13.78 a barrel.

“A little bit of positive trading in front crude contracts (has helped the loonie) ... “but over time, I still expect the Canadian dollar to drift lower,” said Mazen Issa, a senior FX strategist at TD Securities.

Issa expects historically low crude prices to curb production in Canada’s oil patch, hurting Canada’s economy, which is already reeling from measures to help contain the coronavirus outbreak.

At 3:13 p.m., the Canadian dollar was trading 0.2 per cent higher at 1.4181 to the greenback, or 70.52 U.S. cents. The currency, which on Tuesday hit its weakest since April 2 at 1.4263, traded in a range of 1.4115 to 1.4238.

Canada’s annual inflation rate tumbled to 0.9 per cent in March as the coronavirus crisis and an oil supply war slashed gasoline prices, Statistics Canada said. Analysts had forecast a rate of 1.2 per cent.

The Bank of Canada expects inflation to fall to near zero in the second quarter. The central bank has slashed interest rates by 150 basis points since March and has engaged in quantitative easing for the first time, buying government bonds in large scale.

Canadian government bond yields were higher across the curve in sympathy with U.S. Treasuries, with the 10-year up 3.6 basis points at 0.618 per cent.

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