* Canadian dollar was unchanged against the greenback * Canada's annual inflation rate remains at 0.1% in August * Price of U.S. oil increases 2.7% * Canadian bond yields ease across the curve TORONTO, Sept 16 (Reuters) - The Canadian dollar was little changed against its U.S. counterpart on Wednesday as domestic data showed barely any inflation in August, with the currency trading in a narrow range ahead of a Federal Reserve interest rate decision. Canada's annual inflation rate remained at 0.1% in August as rising food prices were offset by declining gasoline costs, Statistics Canada said. Underlying inflation was firmer, with the average of the Bank of Canada's three core measures of inflation ticking up to 1.7% from 1.6%. Oil, one of Canada's major exports, rose for a second day as a hurricane closed U.S. offshore production and an industry report showed U.S. crude inventories unexpectedly decreased. U.S. crude oil futures were up 2.7% at $39.32 a barrel. The U.S. dollar fell across the board ahead of the first Fed interest rate decision since the central bank said that it would pursue average inflation targeting. The Canadian dollar was trading unchanged at 1.3181 to the greenback, or 75.87 U.S. cents. The currency traded in a range of 1.3155 to 1.3200. Setting a target for bond yields could help the Bank of Canada reduce the amount of debt it buys to keep interest rates low, checking a threat to market liquidity after the central bank's share of bonds more than doubled this year, strategists said. Canadian government bond yields were lower across the curve in sympathy with U.S. Treasuries after data showed that U.S. consumer spending appeared to slow in August. The 10-year was down 2.3 basis points at 0.534%. Canada's retail sales report for July is due on Friday. (Reporting by Fergal Smith; Editing by Steve Orlofsky)
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