The currency went as low as 99 cents US before closing down 0.36 of a cent at 99.35 cents US. Still, that was its lowest close since early August 2012 as Statistics Canada said that the annual inflation rate was 0.8 per cent in December, the same as in November.
On a month-to-month basis, consumer prices dipped 0.6 per cent from November, more than economists expected. Prices on a number of key items fell in December from the previous month, including gasoline, automobiles and clothing.
The dollar has been under pressure since the Bank of Canada indicated Wednesday that it will be slower to raise interest rates than had been expected because of economic weakness.
The dollar has been supported in recent months partly on sentiment that the central bank might hike rates later this year. The low inflation suggests interest-seeking investors will have to wait longer for the central bank to move.
Higher rates tend to attract investors and push up the currency.
"The low, low inflation result will simply put additional near-term downward pressure on an already sagging Canadian dollar as it pounds home the rather obvious point that the BoC is going nowhere fast," said BMO Capital Markets deputy chief economist Douglas Porter.
Meanwhile, prices for oil and metals declined as the March crude contract on the New York Mercantile Exchange dipped seven cents to US$95.88 a barrel.
February gold bullion on the Nymex declined $13.30 to US$1,656.60 an ounce while March copper was two cents lower at US$3.65 a pound.