Canadian dollar hits four-week low on U.S. inflation data

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar fell to a four-week low against its broadly stronger U.S. counterpart on Thursday as hotter-than-expected U.S. inflation data cast doubt on prospects of an early start to Federal Reserve interest rate cuts.

The loonie was trading 0.3% lower at 1.3415 to the greenback, or 74.54 U.S. cents, after touching its weakest intraday level since Dec. 14 at 1.3442.

"With not much in the way of domestic economic news the CAD was left to trade off the U.S. inflation report," said Tony Valente, senior FX dealer at AscendantFX.

"That report came is a little higher than expected and may have reset the market's view on the timing of the first rate cut by the Fed."

U.S. consumer prices increased more than expected in December as Americans paid more for shelter and healthcare, suggesting that it was probably too early for the Fed to start cutting interest rates.

"The CAD had moved too much, too fast during December, so this news caught the market leaning the wrong way," Valente said.

The U.S. dollar rallied on Thursday against a basket of major currencies, extending its gains since the beginning of the year.

The price of oil, one of Canada's major exports, was up 0.9% at $72.00 a barrel after Iran seized an oil tanker off the coast of Oman, raising the prospect of escalating conflict in the Middle East.

Canadian government bond yields rose across the curve. The 10-year was up 2.5 basis points at 3.300%, trading at nearly its highest level since mid-December.

(Reporting by Fergal Smith; editing by Jonathan Oatis)