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The Canadian dollar strengthened against its U.S. counterpart on Wednesday as the greenback broadly fell and domestic data supported the view the economy is recovering after a slow patch at the turn of the year.

The U.S. dollar softened against most major currencies in step with lower U.S. bond yields and expectations the Federal Reserve would lower interest rates, reversing some of the prior day’s gains tied to stronger-than-forecast retail sales data.

A combination of a weaker U.S. dollar coupled with “good” Canadian economic data strengthened the loonie, said Ronald Simpson, managing director of global currency analysis at Action Economics.

Lower energy prices helped push down Canada’s annual inflation rate in June to 2.0 per cent from 2.4 per cent in May, while factory sales rose by 1.6 per cent in May, the most in a year, data from Statistics Canada showed.

“I think the narrative that we’ve been talking about is still broadly in place, that growth in Canada is bouncing back after a soft winter and inflation pressures are still right around 2 per cent,” said Nathan Janzen, a senior economist at Royal Bank of Canada.

At 3:16 p.m., the Canadian dollar was trading 0.3 per cent higher at 1.3045 to the greenback, or 76.66 U.S. cents. The currency, which last Friday notched a near nine-month high at 1.3018, traded in a range of 1.3035 and 1.3093.

The gain for the loonie came even as the price of oil, one of Canada’s major exports, fell for the third straight day after U.S. government data showed large builds in refined product stockpiles. U.S. crude futures settled 1.5 per cent lower at $56.78 a barrel.

Canadian government bond prices were higher across a flatter yield curve in sympathy with U.S. Treasuries after data showed weakness in the U.S. housing market and as concerns about the trade war between the United States and China boosted demand for safe-haven debt.

The two-year rose 6 cents to yield 1.527 per cent and the 10-year was up 48 cents to yield 1.535 per cent.

The 10-year yield touched its lowest intraday since July 5 at 1.532 per cent.

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