Canadian dollar weakens as boost from CPI data fades

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Wednesday as the greenback notched broad-based gains, with the currency unable to take advantage of the boost it got from hot domestic inflation data the day before.

The loonie was trading 0.3% lower at 1.37 to the U.S. dollar, or 72.99 U.S. cents, after trading in a range of 1.3651 to 1.3704.

On Tuesday, the currency touched its strongest intraday level in three weeks at 1.3626 as Canadian inflation unexpectedly accelerated to an annual rate of 2.9% in May from 2.7% in April, reducing expectations the Bank of Canada would cut interest rates further next month.

"The market was caught flat-footed yesterday as CAD failed to build on initial gains," said George Davis, chief technical strategist at RBC Capital Markets.

Broad-based U.S. dollar strength has helped to push USD-CAD higher today, Davis added.

The U.S. dollar moved higher against a basket of major currencies as the yen dropped to its lowest level against the greenback since late 1986.

Preliminary data showed Canadian wholesale trade falling 0.9% in May from April, while the price of oil, one of Canada's major exports, was up 0.7% at $81.42 a barrel.

Canadian government bond yields rose across the curve, adding to the previous day's move. The 10-year was up 8.2 basis points at 3.464%, after earlier touching its highest level since June 11 at 3.476%.

(Reporting by Fergal Smith; Editing by Andrea Ricci)