The loonie was trading 0.3% lower at 1.2985 to the greenback, or 77.01 U.S. cents, after touching its weakest since Monday at 1.3017.

"With recession fears spooking markets more generally, commodity prices were under pressure today, which saw the Canadian dollar also on its back foot," said Royce Mendes, director & head of macro strategy at Desjardins.

Purchasing managers' data showed a loss of economic momentum in some major European economies. Investors are concerned that interest rate increases to quell decades-high inflation will tip economies into recession.

The price of oil, one of Canada's major exports, settled 1.8% lower at $104.27 a barrel as investors weighed the potential impact of slower economic growth on fuel demand.

Preliminary domestic economic estimates for May were mixed, with factory sales falling 2.5% from April but wholesale trade up 2%.

Still, money markets expect the Bank of Canada to raise interest rates three-quarters of a percentage point next month after data on Wednesday showed inflation jumping to its highest in nearly four decades.

The central bank has come under a rare attack from critics after misjudging inflation and locking itself into rigid forward guidance that prevented it from reacting swiftly as prices surged and Canada's economy began to overheat.

Canadian government bond yields were lower across the curve, tracking the move in U.S. Treasuries. The 10-year touched its lowest since June 10 at 3.224% before recovering to 3.294%, down 12.7 basis points on the day.

The Bank of Canada announced the bond auction schedule for the coming quarter, including four auctions of 10-year bonds.

(Reporting by Fergal Smith; Editing by Mark Heinrich)

By Fergal Smith