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he Canadian dollar pared earlier gains against the U.S. dollar on Tuesday as oil prices fell and domestic inflation data supported expectations the Bank of Canada would cut interest rates further next month.

The loonie was trading nearly unchanged at 1.3630 per U.S. dollar, or 73.37 U.S. cents, after touching its strongest intraday level since July 11 at 1.3606.

Canada's annual inflation rate cooled to a 40-month low of 2.5% in July, matching forecasts, and core inflation measures eased.

"Today's CPI print should be enough to quell concerns about sticky inflation pressures in Canada after two marginal upside surprises in May and June," Claire Fan, an economist at Royal Bank of Canada, said in a note.

"The hurdle for more BoC cuts this year is low and we continue to look for another 25 basis point cut at their next meeting in September."