* Canadian inflation weaker than expected in July
* C$ hits session low of C$0.9902 vs US$, or $1.0099
* 2-year bond yield falls after soft CPI data
By Claire Sibonney
TORONTO, Aug 17 (Reuters) - Canada's dollar slipped to a
session low against its U.S. counterpart on Friday after the
country's inflation data came in tamer than expected in July,
bolstering expectations the Bank of Canada will leave interest
rates at near-record lows well into 2013.
Consumers paid less for clothing and fuels such as gasoline
and natural gas in the month compared with a year earlier,
easing the annual inflation rate to 1.3 percent from 1.5 percent
in June. Analysts had expected inflation to be unchanged from
June.
"Much softer inflationary pressure in Canada than expected,
which feeds into Bank of Canada expectations and has kicked off
the Canadian dollar from the highs of the day," said Camilla
Sutton, chief currency strategist at Scotiabank.
Following the release, Canada's dollar fell as low
as C$0.9902 to the U.S. dollar, or $1.0099, from around
C$0.9890, or $1.0111 immediately before the release.
Overnight index swaps, which trade based on expectations for
the central bank's key policy rate, showed that traders slightly
decreased bets on any chance of a rate hike after the inflation
data.
At 9:09 a.m. (1309 GMT), the Canadian dollar stood at
C$0.9893, or $1.0108, down from Thursday's close at C$0.9867, or
$1.0135.
The currency was already on slightly weaker ground compared
to Thursday's finish, as the greenback rebounded from a recent
selloff.
"The market we're in at the moment seem to be driven very
much by U.S. dollar direction," said Adam Cole, global head of
foreign exchange strategy at RBC Capital Markets in London.
The Canadian dollar also backed off from a record high
against the euro hit in the previous session, though
it rallied against the Australian dollar on Friday,
touching its strongest level since late June.
Canadian bond prices picked up and yields fell following the
disappointing inflation data.
The interest-rate sensitive two-year bond yielded
1.198 percent, from around 1.232 percent before the data. The
benchmark 10-year bond was little changed, yielding
1.965 percent.