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
    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
    "So for the Canadian dollar, I think we still have weakness
    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.