Loonie strengthens as domestic inflation beats estimates

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday, rebounding from a two-month low it hit the previous session, after stronger-than-expected domestic inflation data.

Canada’s annual inflation rate held steady in July at 2.0% as lower costs for services were offset by higher prices for durable goods. Analysts had expected the annual rate to fall to 1.7% from 2.0% in June.

The Canadian dollar CAD=D4 was trading 0.4% higher at 1.3263 to the greenback, or 75.40 U.S. cents, at 9:43 a.m. ET (1343 GMT). The currency, which on Tuesday touched its weakest intraday level since June 19, was trading in a range of 1.3254 to 1.3324.

The rise for the loonie came as the price of oil, one of Canada’s major exports, rose on Wednesday after industry data showed a larger than expected drop in U.S. crude inventories, but gains were capped by lingering worries about a possible global recession.

U.S. crude oil futures CLc1 were up 1.4% at $56.94 a barrel.

Canada’s retail sales data is due on Friday, with a Reuters poll forecasting a 0.1% decrease, which could help guide expectations about the Bank of Canada’s interest rate decision.

Canadian government bond prices were lower across the yield curve, with the two-year CA2YT=RR down 7.5 Canadian cents to yield 1.382% and the 10-year CA10YT=RR falling 54 Canadian cents to yield 1.214%.

Reporting by Levent Uslu; editing by Jonathan Oatis