By Fergal Smith
TORONTO (Reuters) - The Canadian dollar was little changed against its U.S. counterpart on Wednesday, holding near an earlier one-week low, as investors bet that the Federal Reserve would lift interest rates to a higher end-point than the Bank of Canada.
Money markets have priced in a terminal, or peak, level for rates next year of about 4.25% for the Fed and 4% for the BoC, a more aggressive end-point for both central banks after hotter-than-expected U.S. consumer price data on Wednesday.
"Prior to this latest CPI report, terminal rates were about the same. ... Now that's switched," said Amo Sahota, director at Klarity FX in San Francisco. "That's troublesome for the loonie."
As investors weigh how much further the BoC will tighten, the level of underlying inflation is likely to be a better signpost than the central bank's much scrutinized estimate of the neutral interest rate, economists say.
The Canadian dollar was nearly unchanged at 1.3165 to the greenback, or 75.96 U.S. cents, after touching its weakest intraday level since last Wednesday at 1.3206.
Helping to support the loonie, the price of oil rose 2.2% to $89.25 a barrel as an international energy watchdog expects an increase in gas-to-oil switching due to high prices this winter. Oil is one of Canada's major exports.
Meanwhile, domestic data showed that factory sales fell 0.9% in July from June, the third straight monthly decline. Sales volumes were more robust, rising 0.6%.
Canadian government bond yields were mixed across a flatter curve.
The 2-year touched its highest since December 2007 at 3.816% before dipping to 3.749%, up 3.2 basis points on the day. The 10-year was down 1.5 basis points at 3.181%.
(Reporting by Fergal Smith; editing by Jonathan Oatis)