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Loonie touches its strongest since July 11

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Canada's annual inflation rate slows to 2.5%

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Price of U.S. oil decreases 0.6%

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Bond yields ease across the curve

By Fergal Smith

TORONTO, Aug 20 (Reuters) - The Canadian dollar pared

earlier gains against the U.S. dollar on Tuesday as oil prices

fell and domestic inflation data supported expectations the Bank

of Canada would cut interest rates further next month.

The loonie was trading nearly unchanged at 1.3630 per

U.S. dollar, or 73.37 U.S. cents, after touching its strongest

intraday level since July 11 at 1.3606.

Canada's annual inflation rate cooled to a 40-month low of

2.5% in July, matching forecasts, and core inflation measures

eased.

"Today's CPI print should be enough to quell concerns about

sticky inflation pressures in Canada after two marginal upside

surprises in May and June," Claire Fan, an economist at Royal

Bank of Canada, said in a note.

"The hurdle for more BoC cuts this year is low and we

continue to look for another 25 basis point cut at their next

meeting in September."

The BoC has twice cut its policy interest rate by 25 basis

points since June, lowering it to 4.50%.

The swaps market is fully pricing in another cut at the next

policy decision on Sept. 4 and expects 76 basis points of

additional easing in total by the end of 2024, instead of an

estimated 72 basis points before the inflation data.

The price of oil, one of Canada's major exports, fell to a

near two-week low as Middle East supply concerns eased and

economic weakness in China weighed on fuel demand.

U.S. crude oil futures were down 0.6% at $73.94 a

barrel, while the U.S. dollar lost ground against a

basket of major currencies ahead of revisions to U.S. payrolls

data on Wednesday.

Canadian government bond yields moved lower across the

curve, with the 10-year down 5.7 basis points at

3.009%.