TORONTO (Reuters) - The Canadian dollar was weaker against the greenback on Wednesday, touching a session low after data showed Canadian retail sales fell unexpectedly in August, as the market awaited the Bank of Canada's quarterly policy report, due later in the morning.
Retail sales, dragged on by lower gasoline prices and weaker sales of new cars and food, fell 0.3 percent, the biggest drop since a 1.1 percent decline last December.
"Weaker-than-expected (retail sales) and weaker Canadian dollar, pretty straightforward. Realistically, it's not that bad of a (retail) number," said Benjamin Reitzes, senior economist and foreign exchange strategist at BMO Capital Markets.
"It's certainly weaker than consensus, but ... overall it's nothing to be too concerned about. It won't change anything for the bank, that's for sure."
At 9:23 a.m. (1426 GMT), the Canadian dollar CAD=D4 was at C$1.1280 to the greenback, or 88.65 U.S. cents, weaker than Tuesday's close of C$1.1228, or 89.06 U.S. cents.
U.S. consumer prices ticked higher in September, which pushed the U.S. dollar modestly higher, though Reitzes said the bulk of the Canadian dollar move was likely driven by the Canadian data.
Investors are expecting the Bank of Canada, widely forecast to hold its key interest rate at 1 percent, to maintain a cautious tone and focus on global economic uncertainties in its report.
"I would expect (the report is) pretty much priced in, unless it's exceptionally dovish and maybe they hint at a rate cut, which would be very unlikely, or move away from the neutral stance, which again, is very unlikely," Reitzes said.
Canadian government bond prices were lower across the maturity curve, with the two-year CA2YT=RR down half a Canadian cent to yield 0.98 percent and the benchmark 10-year CA10YT=RR falling 8 Canadian cents to yield 1.975 percent.
Reporting by Solarina Ho; Editing by Peter Galloway