Canadian dollar hits 11-day low as cooler inflation boosts rate cut bets

By Fergal Smith

TORONTO, Feb 17 (Reuters) - ‌The Canadian ​dollar weakened ​against its U.S. counterpart on Tuesday, as the greenback posted broad-based gains and domestic inflation data raised prospects the Bank of ‌Canada would resume its interest rate cutting campaign.

The loonie was trading ⁠0.2% lower at 1.3655 per U.S. dollar, or 73.23 U.S. cents, after touching its weakest ‌intraday level since February 6 ‌at 1.3692.

Canada's annual inflation rate slowed to 2.3% in January from 2.4% in the previous month as a big drop in gasoline prices helped cushion ​the impact of higher food and clothing prices. Analysts had expected inflation to hold steady at 2.4%.

"The Bank has made it abundantly clear that ⁠the bar to cut rates again is quite high, and it continues to stress that monetary policy cannot ​fix supply shocks," Douglas Porter, chief economist at BMO Capital Markets, said in a note.

"Even so, if inflation continues to ​decelerate, the Bank could be in position ‌to support the economy should growth truly struggle as it undergoes a structural shift."

Canada, seeking to cut its reliance on the ⁠U.S. arms industry, wants to dramatically increase the amount of weapons it buys from domestic firms, according to a defense strategy document.

Investors see a roughly 35% chance the ⁠BoC eases policy this year after the central bank left its benchmark rate on hold ​at 2.25% since October. Earlier this month, the market was leaning toward the next move being a hike.

The safe-haven U.S. dollar rose against a basket of major currencies as AI-related ‌jitters crimped risk appetite.

The price of oil, one of Canada's major exports, was trading 1.3% lower at $62.11 a barrel ‌as concerns eased about an escalation in tensions between the U.S. and Iran.

Canadian bond ⁠yields moved lower across a flatter ‌curve. The 10-year was ​down 3.6 basis points at 3.223%, after earlier touching its lowest since December 1 at 3.204%.

(Reporting by Fergal Smith; Editing by ‌Alexandra Hudson)

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