The loonie was down 0.7% at 1.3335 per U.S. dollar, or 74.99 U.S. cents, after trading in a range of 1.3228 to 1.3339. On Monday, it touched its weakest since November 2020 at 1.3344.
Canada's annual inflation rate slowed to 7.0% in August, below analyst forecasts of 7.3% and down from 7.6% in July.
Much of the deceleration was due to lower gasoline prices and slower gains in the shelter index, but all three core measures of inflation also eased slightly.
Money markets see an 85% probability of a 50-basis-point interest rate hike by the Bank of Canada in October, after having fully priced in a move of that magnitude before the data.
Hikes in excess of 25 basis points had been rare in recent years but not in 2022.
The U.S. dollar remained strong near a two-decade high versus major peers as investors held firm in expectation of another aggressive rate hike by the Federal Reserve at a policy announcement on Wednesday.
The price of oil, one of Canada's major exports, was pressured by worries about fuel demand. U.S. crude prices were down 0.9% at $85 a barrel.
Canadian government bond yields were lower across much of the curve. The 10-year eased nearly 4 basis points to 3.113%, while it fell about 12 basis points further below the equivalent U.S. rate to a differential of 46.1 basis points.
(Reporting by Fergal Smith, Editing by William Maclean)
