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The Canadian dollar CADUSD fell to a 10-day low against its broadly stronger U.S. counterpart on Thursday, as equity markets slid ahead of key data and despite the Bank of Canada leaving the door open to a three-quarter-percentage-point interest rate hike.

The Canadian dollar was trading 1.1% lower at 1.2695 to the greenback, or 78.77 U.S. cents, after touching its weakest since May 30 at 1.2698. It was the currency’s biggest decline since August last year.

Wall Street’s main indexes fell and the U.S. dollar rallied against a basket of major currencies as investors braced for a U.S. inflation report on Friday that could help determine the pace of Federal Reserve interest rate hikes.

“There is risk that sentiment sours a bit, which is not constructive for the Canadian dollar,” said Mazen Issa, a senior FX strategist at TD Securities.

“U.S. CPI could be the catalyst because it is well understood that the year-over-year measure could peak but what is more important is the monthly price gains.”

Bank of Canada Governor Tiff Macklem said inflation would dictate how fast Canadian interest rates go up, reiterating that the bank might need to make more increases in a row or consider a move larger than 50 basis points.

Money markets see a 40% chance that the central bank would hike by 75 rather than 50 basis points at the July 13 policy announcement.

The price of oil, a major driver of inflation and one of Canada’s major exports, eased back from three-month highs after parts of Shanghai imposed new COVID-19 lockdown measures.

U.S. crude prices settled 0.5% lower at $121.51 a barrel, while Canadian government bond yields eased across the curve.

The 10-year fell 3.2 basis points to 3.240%, after earlier touching its highest since April 2011 at 3.310%.

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