* C$ at C$1.0385 vs US$, or 96.29 U.S. cents
* CPI rises for second month, but weaker than expected
* Bond prices rise across maturity curve
By Solarina Ho
TORONTO, July 19 (Reuters) - The Canadian dollar retreated
modestly against its U.S. counterpart in subdued trading on
Friday, as Canadian inflation data came in slightly weaker than
expected.
Canada's annual inflation rate rose in June for a second
month, to 1.2 percent, after hitting a 3-1/2-year low in April,
but price pressures remained muted as the central bank signaled
an extended pause on interest rates.
Month-over-month figures were 0.1 percent weaker than what
economists polled by Reuters had expected.
"The weak CPI is reducing any expectation the Bank of Canada
will be hiking (rates) any time soon - not that there was any -
but it signals the Bank of Canada will be on hold for a very
long time," said Charles St-Arnaud, economist and currency
strategist in New York.
"It's a very, very slow session today ...very weak volumes
so far in the market, especially in the Canadian dollar," he
added, noting the commodities-linked currency was not reacting
to other factors like higher oil prices.
The Canadian dollar, which was underperforming most
of its major currency counterparts, was trading at C$1.0385
versus the U.S. dollar, or 96.29 U.S. cents, at 9:48 a.m. (1348
GMT). This was softer than both prior to the data's release and
Thursday's North American finish at C$1.0376, or 96.38 U.S.
cents.
The currency wasn't expected to move much beyond Friday's
tight range between C$1.0360 and C$1.0393, with activity set to
slow further once Europe closes for the weekend, St-Arnaud said.
The price of government debt rose slightly across the curve
after the data, with the two-year bond up 1.5
Canadian cents to yield 1.087 percent and the benchmark 10-year
bond rising 21 Canadian cents to yield 2.374
percent.