BOC unlikely to cut rates at next week’s meeting

Canada's annualised inflation rate fell to more than one-year low in January and stood at 1 percent, latest report from Statistics Canada showed on Thursday. Analysts expected for a decline of 0.7 percent. The reading stood at 1.5 percent in the month of December. Core inflation held steady at 2.2 percent.

Cheaper oil weighed on the latest inflation figures. Gasoline prices plunged 26.9 percent in the 12 months to January, significantly more than December's 16.6 percent fall.

"We're seeing overall the impact of dropping gasoline prices, as was expected, keeping the monthly move in negative territory with a drop of two-tenths of a percent and pushing the year-over-year rate lower to 1 percent from the 1.5 we saw in December. However there's not any evidence emerging in terms of that weakness flowing over into core prices", said Paul Ferley, assistant chief economist at Royal Bank of Canada.

The Bank of Canada slashed rates to 0.75 percent in last month, to avert a sharper economic slowdown. Analysts have lowered their expectations regarding the next rate cut when the central bank meets again next week, particularly after Governor Stephen Poloz hinted earlier this week that the BOC will stand pat.

"We would say that these numbers would just reinforce that view, that the Bank of Canada can afford to wait a little bit," said Doug Porter, chief economist at BMO Capital Markets in Toronto.

The Canadian dollar weakened and USD/CAD rose to 1.2497 following the release of the inflation report, higher than the previous day's close of 1.2423. It now trades around 1.2487 levels. On the topside, the immediate resistance is seen at 1.2535 levels and above which gains could be extended to 1.2566 levels. On the flipside, next support is seen at 1.2446 levels, and then at 1.2404 levels.

Lennon Sweeting, currency strategist at USForex, said the last few sessions have given opportunities for traders to book profit on long U.S. dollar positions.

"Now what we're seeing is those same participants reloading those positions at lower levels with the overall theme being for U.S. dollar strength over the next few months," he said.