• Canadian dollar weakens 0.1% against the greenback
• Trades in a range of 1.3581 to 1.3616
• Canada's annual inflation rate slows to 2%
• Bond yields rise across the curve

TORONTO, Sept 17 (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Tuesday as domestic inflation data suggested to some investors that the Bank of Canada could match a potential supersized interest rate cut by the Federal Reserve.

The loonie was trading 0.1% lower at 1.3595 per U.S. dollar, or 73.56 U.S. cents, after trading in a range of 1.3581 to 1.3616. The currency has been in a holding pattern since last Wednesday when it touched a three-week low at 1.3622.

"CAD's performance is hamstrung by market thinking that the BoC's policy outlook hinges to some extent on the Fed's at this point," Shaun Osborne, chief currency strategist at Scotiabank, said in a note.

The U.S. dollar (.DXY) , opens new tab hovered near its lowest levels of the year against a basket of major currencies, a day before the expected start of a U.S. easing cycle that markets are wagering may begin with a half-percentage-point reduction in rates, rather than a quarter-point move.

Canada's annual inflation rate slowed to 2% in August from 2.5% in July, matching the BoC's inflation target and marking the coolest pace since February 2021. Analysts had expected inflation to slow to 2.1%.

"The details of the August release provide further evidence that the inflation battle is almost won and will serve to increase speculation that the Bank might soon cut by a larger 50 bp (basis points)," Stephen Brown, deputy chief North America economist at Capital Economics, said in a note.

Investors see roughly 100 basis points of easing in total in the final three BoC meetings of 2024, implying at least one move in excess of 25 basis points.

Canadian bond yields rose across the curve, tracking moves in U.S. Treasuries after an unexpected increase in U.S. retail sales. The 2-year was up 3.1 basis points at 2.915%.

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https://www.reuters.com/markets/currencies/c-dips-inflation-data-fuels-boc-upsized-rate-cut-talk-2024-09-17/