CANADA FX DEBT-Loonie ends weaker after Canada inflation data
* C$ at C$1.0299 against U.S. dollar * Canadian inflation down a tad in August, as expected, * Bond prices rise across the curve By Leah Schnurr TORONTO, Sept 20 (Reuters) - The Canadian dollar weakened on Friday as investors backed away from the market as they tried to gauge how long the U.S. central bank will keep its stimulus measures in place, while an inflation report at home reinforced the view Canadian interest rates will stay low for some time. Canada's annual inflation rate edged down in August to 1.1 percent from 1.3 percent in July, as expected, giving the Bank of Canada plenty of space to remain accommodative. The central bank is expected to keep its benchmark interest rate on hold at 1.0 percent - where it has been since September 2010 - well into next year, as long as inflation is muted. "The implication from that is that the Bank of Canada should have lots of breathing room to remain sidelined to nurture the broader economic recovery," said Mazen Issa, macro strategist at TD Securities. For the most part, the report did not change expectations that Canada's central bank will keep rates steady at its next policy announcement date in October. The Canadian dollar ended at C$1.0299 to the U.S. dollar, or 97.10 U.S. cents, weaker than Thursday's session close of C$1.0262, or 97.45 U.S. cents. Investors continued to assess a decision by the U.S. Federal Reserve earlier in the week to maintain its $85 billion a month in bond purchases, a move that surprised economists and investors, who had expected the Fed to reduce its purchases modestly. The Canadian dollar surged in the immediate aftermath of the announcement, touching a three-month high, but it has pulled back since. By Friday, the U.S. dollar was edging off its lows and was up 0.1 percent against a basket of currencies. "It's getting back to what are 'normal' market conditions where you have to look at each country for its own value, and that's on economics," said John Curran, senior vice president at CanadianForex. "So for the Canadian dollar, I think we still have weakness ahead." Analysts scrutinized a slew of comments from Fed policymakers on Friday for further insight into the potential path of U.S. monetary policy. Among the day's speakers, Kansas City Fed President Esther George - an outspoken hawk - warned the central bank had harmed its credibility by delaying stimulus reduction. But St. Louis Fed chief James Bullard defended the decision, saying low inflation meant the central bank can be patient in deciding when to act, though he noted the prospects for tapering would pick up if U.S. jobs data improves further. Prices for Canadian government bonds were higher across the maturity curve, with the two-year bond up 5-1/2 Canadian cents to yield 1.227 percent, and the benchmark 10-year bond up 16 Canadian cents to yield 2.693 percent.
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