The Canadian dollar weakened to near its lowest levels in almost five weeks against its US counterpart on Tuesday, after domestic data showed inflation accelerated at a slower-than-expected pace in April, while the US dollar posted broad gains.

The Canadian dollar, known as the loonie, fell by 0.1% to CAD 1.3750 against the US dollar, or 72.23 US cents, after touching 1.3773 during trading, its weakest level since April 15.

Data showed that Canadas consumer price index rose by an annual rate of 2.8% in April, compared with 2.4% in March, driven mainly by a surge in gasoline prices following the war with Iran, which caused a sharp rise in global oil prices.

Analysts had expected headline inflation to reach 3.1%, while core price pressure indicators closely watched by the Bank of Canada declined.

Royce Mendes, head of macro strategy at Desjardins, said in a note: After concerns about another round of high and persistent inflation, Canadian policymakers can now feel somewhat more comfortable.

He added: Although interest rate cuts are not yet on the table, market pricing for two rate hikes appears excessive.

Swap markets showed traders are now expecting 50 basis points of monetary tightening from the Bank of Canada this year, down from 54 basis points before the data release.

Meanwhile, the US dollar rose against a basket of major currencies, as investors focused on the possibility that the Federal Reserve could adopt a more hawkish stance to contain inflation driven by rising energy prices, while uncertainty surrounding a potential Middle East peace agreement also weighed on market sentiment.

Oil prices one of Canadas key exports were little changed near $108.65 per barrel, remaining close to the upper end of their trading range since early May.

Canadian government bond yields showed mixed performance across a steeper yield curve, with the 10-year yield rising by two basis points to 3.713%, after earlier touching its highest level since May 2024 at 3.744%.

The Canadian government also launched US dollar-denominated global bonds, with final pricing expected on Wednesday.