Canadian stocks sank deeper into the red Tuesday as investors awaited what’s expected to be a super-sized Bank of Canada interest rate hike and the latest U.S. inflation data on Wednesday.

The S&P/TSX Composite Index closed the Tuesday session 138.16 points, or 0.73 per cent, lower at 18,678.64. It’s the third straight day of losses for the TSX.

Energy stocks took a hit as U.S. benchmark oil fell to a three-month low on concerns about how demand could be impacted by an economic slowdown. West Texas Intermediate sank US$8.25 to US$95.84 per barrel.

New Gold was the worst-performing stock on the TSX. Shares tumbled 26.4 per cent, or $0.33, to $0.92 after the miner slashed its production outlook for this year and warned of higher costs and expenses amid a setback at its Rainy River operations.

It was a choppy trading session for U.S. markets, which spent some of the day in positive territory, only to post declines across the board at the close. The S&P 500 lost 0.92 per cent, the Dow slid 0.62 per cent and the Nasdaq fell 0.95 per cent.

The latest U.S. inflation is due out on Wednesday and Wall Street is expecting June prices to have risen a whopping 8.8 per cent year-over-year – the largest jump since 1981.

“No one really wants to touch this market. And as you say, there's a tug of war between recessions and soft landing and what's goanna happen to inflation,” Pierre Ouimet, head investment strategist at UBS Canada, said in an interview Tuesday.

It's kind of a race to the finish line right now – who’s going to blink first? Is it going to be inflation or is it going to be the Fed? So we're kind of in no man's land and until there's better clarity on that, probably the best thing to do is to continue to remain to be cautious.”

He said he’s positioning client portfolio to be defensive.

“We were kind of positive on the whole commodity spectrum, but that is starting to unwind quite substantially. There's also a large value tilt toward portfolios in general, which brings in cyclical stocks and commodity stocks, which are extremely cheap,” Ouimet said.

“And most of our portfolios have a fair slice of alternative investments, which are uncorrelated to large extent -- private equity, hedge funds, real estate, things of that nature, structured products, for example. That's a kind of a safe place to be.”

The Canadian dollar traded lower at 76.82 cents U.S.

Earlier Tuesday, the loonie fell about a quarter of a cent against the greenback, in a second straight day of selling pressure amid broad-based U.S. dollar strength. That’s despite expectations that the Bank of Canada will raise its policy rate by three-quarters of a point Wednesday.

“Now the question becomes can Canada afford 75 basis points, given our large reliance on the housing market, on financial assets and the like to basically drive consumer spending?” Lyle Stein, the president of Forvest Global Wealth Management Inc., said in an interview Tuesday.

“I agree with the view that we have to get inflation down, but this one could be much more painful than what 75 basis points could be in the U.S.,” Stein said.

Despite the Canadian dollar’s recent weakness against the world’s reserve currency, Stein said it hasn't fallen as far as other currencies, like the euro, due to an aggressive central bank.

“The bad news is the Canadian dollar is at a 52-week low. However, compared to the rest of the world, we look quite smart,” Stein said.