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The Canadian dollar weakened to its lowest level in nearly three months against its U.S. counterpart on Wednesday as the fast-spreading Omicron variant weighed on oil prices and domestic data showed inflation matching expectations.

Canada’s annual inflation rate remained at 4.7 per cent in November, the highest since March 2003, as supply chain disruptions continued to exert upward pressure on prices, Statistics Canada said.

To fight inflation, investors are betting that Canada’s central bank will begin hiking interest rates in March or April.

“The market is already priced pretty aggressively for the Bank of Canada next year,” said Bipan Rai, North America head of FX strategy at CIBC Capital Markets. “So we haven’t seen much of a reaction in USD-CAD because of that.”

Bank of Canada Governor Tiff Macklem is set to speak on the central bank’s renewed monetary policy framework at 12 p.m. EST (1700 GMT).

Inflation is also at multi-decade highs in the United States. The Federal Reserve is expected to announce on Wednesday that it is speeding up the end of its pandemic-era bond purchases and signal a turn to interest rate rises next year. The U.S. central bank is due to release its latest policy statement and updated economic projections at 2 p.m. EST.

The price of oil, one of Canada’s major exports, fell as the World Health Organization said COVID-19 vaccines may be less effective against the Omicron variant.

U.S. crude prices were down 0.7 per cent at $70.26 a barrel, while the Canadian dollar was trading 0.2 per cent lower at 1.2881 to the greenback, or 77.63 U.S. cents. The Canadian currency touched its weakest level since Sept. 20 at 1.2886.

On Tuesday, Canada cut its deficit forecast to C$144.5-billion for this fiscal year as tax revenues increased and less emergency aid was used. Projected gross issuance of bonds and T-bills was cut by C$59-billion to C$453-billion.

The Canadian 10-year yield eased 2 basis points to 1.413 per cent.

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