(Adds market player quotes and details throughout, updates prices) * Canadian dollar rises 0.2% against the greenback * Canada's annual inflation rate held steady in July at 2% * U.S. oil prices fall by 0.8% * Bond prices move lower across the yield curve By Levent Uslu TORONTO, Aug 21 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday, recovering from a two-month low it hit the previous day after stronger-than-expected domestic inflation data, but earlier gains were capped as the greenback rallied broadly. The U.S. dollar gained against a basket of currencies after minutes from the Federal Reserve's July meeting showed that policymakers were united in wanting to avoid the appearance of being on the path to further rate cuts. Canada's annual inflation rate held steady in July at 2% as lower costs for services were offset by higher prices for durable goods. Analysts had expected the annual rate to fall to 1.7% from 2% in June. "The Canadian dollar and other major currencies are selling off in response to a lowering of odds of further monetary easing from the Federal Reserve," said Karl Schamotta, director of global markets strategy at Cambridge Global Payments. But "the inflation data this morning is underpinning the rally that we've seen." The Canadian dollar was trading 0.2% higher at 1.3289 to the greenback, or 75.25 U.S. cents, at 3:12 p.m. (1912 GMT). The currency, which on Tuesday touched its weakest intraday level since June 19, was trading in a range of 1.3254 to 1.3324. Oil futures gave up earlier gains as increases in refined product inventories and lingering worries about the global economy offset U.S. government data showing a drawdown in domestic crude stocks. U.S. crude oil futures settled 0.8% lower at $55.68 a barrel. Canada's retail sales data is due on Friday, with a Reuters poll forecasting a 0.1% decrease, which could help guide expectations about the Bank of Canada's interest rate decision. Canadian government bond prices were lower across the yield curve, with the two-year down 10 Canadian cents to yield 1.395% and the 10-year falling 53 Canadian cents to yield 1.213%. (Reporting by Levent Uslu; Editing by Nichola Saminather and Peter Cooney)
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