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* C$ at C$1.0396 vs the US$, or 96.19 U.S. cents * CAD hits strongest level against AUD in nearly 3 years * Bank of Canada expected to maintain hawkish bias next week * Bond prices mostly higher By Solarina Ho TORONTO, July 12 (Reuters) - The Canadian dollar softened against the U.S. dollar on Friday, but it hit its strongest level against the Australian dollar in nearly three years, and it gained 1.7 percent on the greenback on the week. The Canadian dollar surged earlier this week against its U.S. counterpart on dwindling market expectations that the U.S. Federal Reserve would scale back its stimulus measures soon. The U.S. dollar on Wednesday and Thursday reeled after Fed chief Ben Bernanke cast doubts on when the central bank will start slowing its asset purchase program. "There's been a fair bit of volatility in the currency space and as far as the Canadian dollar is concerned, some buying of Canadian dollars on the back of the surprise guidance from Ben Bernanke on Wednesday afternoon," said Jack Spitz, managing director of foreign exchange at National Bank Financial. The Canadian dollar finished the North American trading session at C$1.0396 versus the greenback, or 96.19 U.S. cents, weaker than the Bank of Canada's posted closing rate on Thursday of C$1.0385, or 96.29 U.S. cents. The Australian dollar slumped on expectations that China's economic growth rate will fall, and rising fears that the Reserve Bank of Australia will cut rates. Against the Canadian dollar, it fell as low as 93.52 Canadian cents at one point, a level not seen since Aug. 27, 2010. "As we head into the end of the week, we see some of those long Canada positions being squared up ... to some degree that squaring of positions is also ahead of the China data coming out on Sunday night," Spitz added. Heading into next week, market focus will turn squarely to the Bank of Canada's next policy decision on July 17, the first under the bank's new governor, Stephen Poloz. "The expectation is the Bank of Canada will maintain its slight hawkish bias," said Camilla Sutton, chief currency strategist at Scotiabank. A Reuters poll of economists released on Wednesday showed the Bank of Canada is expected to keep its bias toward tightening, but that slow growth and low inflation mean that an actual rate hike will not happen until the fourth quarter of 2014. Prices for Canadian government debt were mixed, with the two-year bond losing 1 Canadian cent to yield 1.138 percent. The benchmark 10-year bond climbed 11 Canadian cents, yielding 2.432 percent.