The Canadian dollar hit its lowest in almost three weeks against its U.S. counterpart on Tuesday as oil prices fell and cooler domestic inflation data raised expectations the Bank of Canada would cut interest rates in the coming months.

Canada’s annual inflation rate fell to 2.9 per cent in January, not only much lower than Bay Street estimates, but marking a return to the Bank of Canada’s target range.

Although inflation in Canada eased to the Bank of Canada’s 2% target in August, Royal Bank of Canada economists aren’t partying. They argue 2024’s 2% inflation isn’t 2019’s 2%.

The Canadian dollar was barely changed against its U.S. counterpart on Monday as oil prices rose and investors awaited domestic inflation data that could guide expectations for the Bank of Canada policy outlook.

Statistics Canada will issue the Consumer Price Index (CPI) for July on Tuesday. This will attract the market's attention since it will provide the Bank of Canada (BoC) with fresh information on how inflation is changing, which they use to set interest rates.

OTTAWA—Inflation in Canada heated up last month due in part to jump in mortgage-interest costs with higher interest rates, though there were some signs of prices moderating for consumers.

Canada's main stock index inched lower on Monday as investors avoided big bets ahead of domestic inflation data due on Tuesday and a key U.S. central bank conference starting on Friday.