CANADA FX DEBT-C$ mildly weaker, focus on Carney testimony

* C$ down at C$0.9890 to the U.S. dollar, or $1.0111

* Bond prices flat to lower after three-session surge

* Canada’s annual inflation rate eases in July

* Focus squarely on Carney, Flaherty testimony

By Ka Yan Ng and Trish Nixon

TORONTO, Aug 19 (Reuters) - Canada’s dollar was slightly weaker against the U.S. currency on Friday morning, shrugging off July inflation data, as focus turned to testimony from Canadian policymakers facing questions about the domestic economy later in the session.

Canadian Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney will be grilled by a parliamentary committee on the possible fallout for the domestic economy from global economic turmoil. Flaherty is scheduled to speak at 9 a.m. (1300 GMT), followed an hour later by Carney. For more details, see [ID:nN1E77F1AL]

Their appearance in Ottawa marks the key event of the session for Canadian markets, as the data released by Statistics Canada suggested no inflation pressures, leaving the Bank of Canada some breathing room to leave rates unchanged for now. [ID:nN1E77I02W]

“Very neutral data. Pretty much in line with where the market had expected, and also falling back slightly from last month on some of the numbers, which I think just provides some flexibility to the Bank of Canada,” said Camilla Sutton, chief currency strategist at Scotia Capital.

“Now I think the market is just turning to what Carney will or won’t say at today’s appearance.”

Data showed Canada’s annual inflation rate eased in July to 2.7 percent from 3.1 percent in June, in part because the introduction of higher sales taxes in three provinces is no longer included in calculations, Statistics Canada said on Friday. [ID:nSCLJJE70X]

Although July marked the 10th straight month that overall inflation has been above the Bank of Canada’s 2 percent target, the figure was well below the eight-year high of 3.7 percent recorded in May. Market analysts had forecast the July rate would be 2.8 percent.

The closely watched annual core rate, which strips out prices of some volatile items, rose to 1.6 percent from 1.3 percent in June.

At 7:40 a.m. (1140 GMT), the currency was at C$0.9890 to the U.S. dollar, or $1.0111, down slightly from Thursday’s session close at C$0.9884 to the U.S. dollar, or $1.0117.

Government bond prices were flat to lower on Friday morning, giving back a fraction of rally of the past three sessions.

The two-year bond CA2YT=RR was off 1 Canadian cent to yield 0.867 percent, while the 10-year bond CA10YT=RR fell 26 Canadian cents to yield 2.329 percent. (Reporting by Ka Yan Ng and Trish Nixon; Editing by Theodore d'Afflisio)