CANADA FX DEBT-C$ softens on Bernanke, Bank of Canada comments

* C$ at C$1.0414 vs US$, or 96.02 U.S. cents
    * Bank of Canada holds interest rate at 1 pct
    * BoC offers conditions for steady rates, says next move up
    * Bernanke expects to trim bond buying but timing flexible
    * Bond prices rise across curve

    By Solarina Ho
    TORONTO, July 17 (Reuters) - The Canadian dollar weakened
against the U.S. dollar on Wednesday after U.S. Federal Reserve
Chairman Ben Bernanke reaffirmed his intention to scale back
bond-buying and the Bank of Canada outlined conditions for
holding interest rates steady.
     The U.S. dollar strengthened broadly after Bernanke stayed
close to the timetable he outlined last month for pulling back
on the bond-buying program, but he emphasized that the timing is
not set in stone should economic conditions change, and he
highlighted the risks for the economy of weak inflation.
    "The Fed is still trying to make this very clear distinction
that tapering is not (monetary-policy) tightening. So tapering,
yes, potentially. Tightening rates, definitely not," said Shaun
Osborne, chief currency strategist at TD Securities.
    "Just the mere fact that the tapering prospect remains alive
has actually given the U.S. dollar a bit of support," he added.
    The Canadian dollar, which was underperforming
against all major currencies except the Japanese yen,
finished its North American session at C$1.0414 versus the U.S.
dollar, or 96.02 U.S. cents. That was weaker than Tuesday's
close of C$1.0366, or 96.47 U.S. cents.
    The Bank of Canada's first policy announcement under new
Governor Stephen Poloz stayed close to the those made under his
predecessor, Mark Carney, saying that borrowing costs will
eventually rise. The bank held its overnight rate at 1 percent,
but was more explicit than in the past in highlighting the
factors that will affect its rate decisions. 
    "The release was consistent with our view that the Bank of
Canada is pretty much on the sidelines until the Fed move," said
Darcy Briggs, a portfolio manager at Bissett Investment
Management, part of Franklin Templeton Investments. "You've got
David and Goliath. What happens in the States has a very
significant impact here." 
    "The (Canadian dollar) did sell off, but then again, the
 - the U.S. basket of currencies - it spiked up. So was it
a Canadian story, or was it a U.S. dollar story because of
Bernanke speaking? Difficult to discern."
    Osborne said the Canadian dollar would face challenges
firming past C$1.04 against the greenback, and he saw it trading
in a near-term range of C$1.0350 and C$1.0450.
    Factory activity in the U.S. mid-Atlantic region on Thursday
and Canadian inflation data on Friday could drive provide
further direction for the market. 
    Following the Bank of Canada decision and its governor's
comments, traders bid up the price of shorter-term Canadian
government bonds slightly, sending yields lower. The move showed
there was little concern that the central bank will rush to
increase interest rates. 
    The price of the two-year bond was up 5.5
Canadian cents to yield 1.092 percent, and the benchmark 10-year
bond climbing 30 Canadian cents to yield 2.372