Canadian dollar retreats from 9-month high as inflation cools

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday as domestic data showed inflation easing to its slowest pace in two years, but the move was not large enough to change the bullish technical outlook for the currency.

The loonie was trading 0.2% lower at 1.3180 to the greenback, or 75.87 U.S. cents, after earlier touching its strongest level since September at 1.3117.

"Certainly no damage has been done to the bullish technical picture," said Michael Goshko, senior market analyst at Convera Canada. "You would need to break up through 1.3270 to do any kind of damage."

The area around 1.3270 was the low point for the currency on June 20.

Canada's annual inflation rate slowed to 3.4% in May from 4.4% in April, benefiting from a comparison to last May's strong price increases.

Money markets see a roughly 60% chance of a rate hike at the Bank of Canada's next policy decision on July 12, down from 64% before the data. The central bank tightened this month for the first time since January, lifting its policy rate by 25 basis points to a 22-year high of 4.75%.

The move lower for the Canadian currency came as the price of oil, one of Canada's major exports, settled 2.4% lower at $67.70 a barrel on signals that the European Central Bank is not done with interest rate hikes.

Commodity currencies, such as the Canadian dollar, could be seeing some profit-taking after "a very nice run this past month," Goshko said.

Canadian government bond yields were mixed across the curve.

The 2-year eased nearly one basis point to 4.614%, while the gap between it and the equivalent U.S. rate narrowed by 10.2 basis points to a gap of 15 basis points in favor of the U.S. bond.

(Reporting by Fergal Smith; editing by Mark Heinrich)