Loonie lower after 2 days of gains

TORONTO - The Canadian dollar drifted lower following two days of strong advances as falling gasoline prices pushed January inflation lower.

The loonie declined 0.31 of a U.S. cent to 80.19 cents as Statistics Canada reported that its consumer price index fell by 0.2 per cent during the month, not quite as steep as the 0.4 per cent decline economists had generally expected.

The agency says that Canada's annual inflation rate in January was 1.0 per cent, compared with 1.5 per cent in December.

Gasoline prices fell 26.9 per cent year-over-year in January, reflecting the collapse in oil prices caused by a huge supply/demand imbalance. Oil prices have fallen 40 per cent since the end of November, when OPEC refused to cut production in order to bolster crude prices.

Inflationary pressures were similarly soft in the U.S. last month. The American consumer price index tumbled 0.7 per cent in January, again because of falling fuel prices.

Other data out Thursday showed that U.S. durable goods orders climbed 2.8 per cent during January.

Oil prices were lower as April crude in New York declined $1.62 to US$49.347 a barrel.

Metal prices were higher as May copper headed up four cents to US$2.68 a pound while April gold gained $7.40 to US$1,208.90 an ounce.

The loonie had jumped about one U.S. cent over the last two sessions following remarks from Bank of Canada governor Stephen Poloz that were interpreted as lessening chances of the bank following up a quarter point rate cut in January with another decrease.

Poloz said last month's surprise rate cut gives the Bank of Canada time to figure out how best to steer the country back toward stability as a recent collapse in oil prices ripples across the economy. He added that the rate cut in January, which reduced the central bank's overnight rate to 0.75 per cent, has given policymakers more confidence the economy should be back on a more sound footing by the end of next year, rather than some time in 2017.

The central bank makes its next interest rate announcement on Wednesday.