* Canadian dollar at C$1.1018 or 90.76 U.S. cents
* Bond prices mostly lower across the maturity curve
* Bank of Canada holds interest rates steady
* Central bank notes risk of weak inflation
(Adds strategist's comments, updates prices to close)
By Alastair Sharp
TORONTO, April 16 (Reuters) - The Canadian dollar ended at
its weakest level versus its U.S. counterpart in more than a
week on Wednesday after the Bank of Canada extended its 3-1/2
year freeze on borrowing costs and noted the risk of weak
inflation.
The central bank's decision to keep its benchmark interest
rate at 1 percent was expected, but the Canadian dollar reacted
bearishly to the tone of its statement, even as bank Governor
Stephen Poloz held firm on the bank's neutral
stance.
"For anyone that was looking for them to be a little more
hawkish, they are barking up the wrong tree completely," said
Shaun Osborne, chief currency strategist at TD Securities.
Following the release of some stronger economic data
recently, market players had been watching for any sign Poloz
would change his tone on inflation and be less dovish than he
was in the bank's March and January rate statements.
Osborne said that with the central bank signaling it will
stand pat on rates, while studying upcoming economic data, the
currency could drift weaker to near C$1.12 to the greenback in
coming weeks.
"For me, there is still a lot to suggest that the Canadian
dollar is probably going to be somewhat fundamentally challenged
this year," he said. "Growth is not picking up in the way we'd
normally expect it to, job creation in Canada seems to be
tracking lower versus somewhat steady growth in the U.S., export
sector is not firing on all cylinders."
The Canadian dollar, which underperformed most
major currencies, ended the session at C$1.1018 versus the
greenback, or 90.76 U.S. cents, weaker than Tuesday's close of
C$1.0977, or 91.10 U.S. cents.
Earlier it fell as low as C$1.1034, or 90.63 U.S. cents, its
weakest level since April 4.
The Bank of Canada also said in its quarterly Monetary
Policy Report that it expects a faster-than-anticipated rise in
Canada's headline inflation, but suggested it would ignore the
trend, attributing it to temporary price increases in volatile
items and a weaker Canadian dollar.
"I think what you're seeing is the bank's plans and guidance
at work," said Brad Schruder, a director of foreign exchange at
BMO Capital Markets, adding that he did not see any surprises in
Wednesday's central bank statements.
"I think the momentum that had been previously supporting
USD/CAD bulls has actually left them. This pop is actually a
good opportunity to get long Canada."
Schruder said he expects the pair to straddle the 91 U.S.
cent level over the next quarter, and perhaps longer.
Canadian government bond prices were mostly lower across the
maturity curve, with the two-year off half a Canadian
cent to yield 1.048 percent and the benchmark 10-year
off 2 Canadian cents to yield 2.390 percent. The
20-year 30-year issues bucked the trend, rising 26 and 34 cents
respectively.
(Additional reporting by Solarina Ho; Editing by Peter
Galloway)