The Canadian dollar fell for a fourth straight session against the greenback Tuesday as slowing inflation raised bets that Canadian interest rates could stay on hold longer than anticipated.
Canada's annual inflation rate eased in November from a two-year high the month before, likely to the relief of the Bank of Canada, which wants to keep rates low until economic recovery gains traction.
Following the report, the currency fell as low as $1.0207 to the U.S. dollar, or 97.97 U.S. cents, almost matching the near-three-week trough it hit on Monday.
The inflation data were followed by retail sales figures that showed consumers kept a lid on spending in October.
"You had some pretty negative data this morning in terms of core CPI, which was softer than the market had expected, and similarly retail sales were pretty soft under the surface, so that's contributed to general weakness in the Canadian dollar," said David Tulk, senior macro strategist at TD Securities.
Mr. Tulk noted the $1.02 level is providing significant support for the Canadian dollar.
"Now we're sort of in this sideways range, basically consolidating over the course of the day and probably all the way through the end of the year," he added.
The economic reports Tuesday portrayed an economy that is growing more slowly than in the first half of the year and is free of inflationary pressures, hardening the view that the Bank of Canada will leave its benchmark lending rate at 1 per cent until after the first quarter of 2011.
The Canadian currency ended the North American session at $1.0175 to the U.S. dollar, or 98.28 U.S. cents, lower than Monday's close at $1.0164 to the U.S. dollar, or 98.39 U.S. cents.
The currency was already weaker before Tuesday's data was released, weighed down by news that Moody's had put Portugal on review for a possible downgrade.
A rally in the price of oil and North American equity markets may have helped put a bottom under the currency's losses, but did little to push it into positive territory.
Steve Butler, director of foreign exchange trading at Scotia Capital, echoed the view that the Canadian dollar looks like it will continue to underperform amid thin volumes as the end of the year approaches.
"Once we get into the mid $1.02s I think we'll probably run into some reasonable interest to buy Canada ... but for now it just feels like regardless of the data going into year-end ... Canada is going to be suffering a bit," he said.
"This year it feels like there's some interest to repatriate some U.S. dollars."
Next in focus will be Canada's gross domestic product figures for October, due on Thursday, with analysts polled by Reuters calling for a 0.3 per cent uptick.
Canadian bond prices were relatively flat, giving back much of their early gains made on the weak data. They appeared to track U.S. Treasury prices as buying momentum faded after the U.S. Federal Reserve purchased $7.79-billion (U.S.) in intermediate-dated debt.
The two-year bond was up 1 cent (Canadian) to yield 1.631 per cent, while the 10-year bond gained 18 cents to yield 3.148 per cent.