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The Canadian dollar CADUSD edged higher against its U.S. counterpart on Tuesday, recovering from its weakest level in nearly four weeks, as oil prices rose and U.S. data showed a measure of underlying inflation climbing less than expected in March.

U.S. core CPI increased by 6.5 per cent in the 12 months through March, the largest advance since August 1982, but below the 6.6 per cent rate that economists expected.

Investors have been bracing for the Federal Reserve and the Bank of Canada to move aggressively to tamp down inflation. Canada’s central bank is expected to raise interest rates by a half-percentage-point on Wednesday, its first hike of that magnitude since May 2020.

It could also move to shrink its bloated balance sheet, a process known as quantitative tightening.

The price of oil , one of Canada’s major exports, was up 3.9 per cent at $97.94 a barrel, as Shanghai’s relaxation of some COVID-19 restrictions eased concerns about Chinese demand and OPEC said it would be impossible to replace potential supply losses from Russia.

The Canadian dollar was trading 0.2 per cent higher at 1.26 to the greenback, or 79.37 U.S. cents, after touching its weakest intraday level since March 17 at 1.2661.

Canadian government bond yields were lower across the curve, tracking the move in U.S. Treasuries. The 10-year fell 3.9 basis points to 2.66 per cent, after touching its highest since January 2014 at 2.735 per cent earlier in the day.

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