TORONTO (Reuters) - Canada's dollar stumbled on Wednesday as the U.S. dollar gained broadly and as unexpectedly low Canadian inflation data lessened the chances that the Bank of Canada will raise interest rates any time soon.
The currency touched its lowest level in just over two weeks against its U.S. counterpart at C$1.0489 to the U.S. dollar, or 95.34 U.S. cents, following the data.
The consumer price index slipped 0.3 percent in December from November, Statistics Canada said on Wednesday, and 12-month inflation was 1.3 percent, lower than expected. Core CPI, closely watched by the central bank, also came in slightly weaker than expected with a decline of 0.3 percent in the month for an annual rate of 1.5 percent.
In a separate report, Canadian manufacturing sales advanced less than expected in November from October as weakness in the automotive and aerospace sectors offset gains in most other industries, Statistics Canada said.
George Davis, chief technical strategist at RBC Capital Markets, said the weakness in the inflation data takes any kind of pressure off the Bank of Canada to act sooner rather than later on raising rates.
"I think from a shorter-term perspective we might see a little more Canadian dollar weakness in reaction to that," he said.
At 10:19 a.m. (1519 GMT), the Canadian dollar was at C$1.0469 to the U.S. dollar, or 95.52 U.S. cents, down from Tuesday's finish of C$1.0307 to the U.S. dollar, or 97.02 U.S. cents.
Another key factor driving the Canadian currency lower on Wednesday was a jump in the greenback, which was given a boost from expectations the election in Massachusetts of a Republican to a U.S. Senate seat might see the government rein in spending and cut the fiscal deficit.
"We're seeing the U.S. dollar outperform across the board," said J.P. Blais, vice president of foreign exchange products at BMO Capital Markets.
The euro fell to five-month lows against the dollar on Wednesday as concerns over Greek debt pushed the currency below a key support level and triggered widespread selling.
Canadian bond prices were firmer across the curve as the market interpreted the inflation data as an indicator the Bank of Canada will stick to its conditional pledge to keep rates on hold until the end of the second quarter.
"It really cemented the fact that there are really soft inflation pressures going through the economy," said Ian Pollick, economics strategist at TD Securities.
The yield on the two-year bond dipped to 1.217 percent, from 1.255 percent just before the inflation data was released.
Yields on overnight index swaps, which trade based on expectations for the key rate, edged lower after the data, showing the market saw tightening as less likely. Still, the market suggests the Bank of Canada's key rate will be around 0.50 percent in July and 1 percent in December, compared with the current 0.25 percent.
Pollick added the market is keenly awaiting details from Thursday's Monetary Policy Report (MPR), the central bank's quarterly economic projection, and an ensuing press conference by Governor Mark Carney.
"If there is more of a dovish tone to the MPR, which I think the Street is thinking about right now, I think they're setting up for a further rally tomorrow," he said.
The two-year Canada bond edged 11 Canadian cents higher to C$100.09 to yield 1.204 percent, while the 30-year bond climbed 28 Canadian cents to C$116.10 to yield 4.024 percent.
Reporting by Jennifer Kwan and Claire Sibonney; editing by Peter Galloway