TORONTO, Nov 13 (Reuters) - The Canadian dollar weakened to a 4-1/2-year low against its U.S. counterpart on Wednesday as investors weighed U.S. inflation data and the prospect of a wider divergence in economic growth between America and Canada.
U.S. consumer prices increased as expected in October amid higher costs for shelter such as rents, and progress toward low inflation has slowed in recent months.
That could result in fewer interest rate cuts from the Federal Reserve next year, supportive of the U.S. dollar (.DXY), opens new tab which advanced to a one-year high against a basket of major currencies.
"Despite a modest undershoot for the unrounded headline figures, today's U.S. CPI data was still solid across the details," said Nick Rees, senior FX market analyst at Monex Europe Ltd. "This has helped refocus market attention on the growing economic divergence between the U.S. and Canada."
The Bank of Canada expects the Canadian economy to grow 1.2% this year compared to 2.8% in the United States.
U.S. President-elect Donald Trump is expected to maintain or introduce new tax cuts and loosen business regulations, which could add to growth.
The Canadian dollar was trading 0.3% lower at 1.3985 to the U.S. dollar, or 71.51 U.S. cents, after touching its weakest intraday level since May 2020 at 1.3999.
The price of oil, one of Canada's major exports, rebounded on short-covering after prices fell near a two-week low in the prior session. U.S. crude oil futures settled 0.5% higher at $68.43 a barrel.
U.S. CPI holds firm in October, but is reflation on the horizon.
Canadian government bond yields moved higher across the curve. The 10-year was up 5.1 basis points at 3.321%, moving back in reach of the three-month high it touched last week at 3.384%.
Reporting by Fergal Smith; Editing by Cynthia Osterman
