Lower gasoline prices pulled Canada's annual inflation rate in January down to 1.4% from 2.0% in December, reinforcing market expectations that imminent interest rate hikes are off the table.

The market had forecast the rate would be 1.5%. January marks the second time in the last 12 months that the rate has slipped below the Bank of Canada's 2.0% target.

The central bank has raised rates five times since July 2017, though Governor Stephen Poloz indicated last week that while interest rates need to move up into a neutral range, he was in no rush to resume monetary tightening.

The bank is due to announce its next interest rate decision on March 6 and market largely expects no change.

Energy costs declined 6.9% in January from the previous year, driven by a 14.2% plunge in gasoline prices. That helped drive the transportation component down 0.4%, its first 12-month decline since July 2016, Statistics Canada said on Wednesday.

Adjusted to remove gasoline, the annual inflation rate was 2.1%.

Service costs were up 2.7%, though down from 3.5% in December as transitory pressures eased, Statistics Canada said. Month-to-month decreases in air transportation and travel tours followed the end of the holiday travel season.

The Bank of Canada's three core inflation measures were unchanged, with CPI common, which the bank says is the best gauge of the economy's underperformance, at 1.9%.

The USD/CAD continues to consolidate below 1.3202, the 14-day exponential moving average. Pair finds support at 1.3110. The next important support level is 1.3052, 38.2% Fibo of 2017-2019 rise. A close below 21-day Bolli by 1.3080 may add to bearish momentum.

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