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Loonie closes lower for third day on flat inflation data

Canadian dollars.

John Cowie/iStockphoto

The Canadian dollar sold off for a third day Friday amid data showing that inflation is even more tame than expected, leaving the Bank of Canada plenty of room to delay any interest rate hike.

The currency went as low as 99 cents (U.S.) before closing down 0.36 of a cent at 99.35 cents. Still, that was its lowest close since early August, 2012, as Statistics Canada said the annual inflation rate was 0.8 per cent in December, the same as in November.

On a month-to-month basis, consumer prices dipped 0.6 per cent from November, more than economists expected. Prices on a number of key items fell in December from the previous month, including gasoline, automobiles and clothing.

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The dollar has been under pressure since the Bank of Canada indicated Wednesday that it will be slower to raise interest rates than had been expected because of economic weakness.

The dollar has been supported in recent months partly on sentiment that the central bank might raise rates later this year. The low inflation suggests interest-seeking investors will have to wait longer for the central bank to move.

Higher rates tend to attract investors and push up the currency.

"The low, low inflation result will simply put additional near-term downward pressure on an already sagging Canadian dollar as it pounds home the rather obvious point that the [Bank of Canada] is going nowhere fast," said BMO Nesbitt Burns Inc. deputy chief economist Douglas Porter.

Meanwhile, prices for oil and metals declined as the March crude contract on the New York Mercantile Exchange dipped 7 cents to $95.88 (U.S.) a barrel.

February gold bullion on the Nymex declined $13.30 to $1,656.60 an ounce while March copper was 2 cents lower at $3.65 a pound.

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