CANADA FX DEBT-Loonie dented by Yellen; Bank of Canada in focus

July 15, 2014

* Canadian dollar at C$1.0758 or 92.95 U.S. cents * Bond prices mixed across maturity curve (Adds details, quotes, updates market prices) By Leah Schnurr TORONTO, July 15 (Reuters) - The Canadian dollar weakened on Tuesday against the greenback, which got a lift from Federal Reserve comments signaling its policy will stay loose, while traders were cautious the day before a policy statement from Canada's own central bank.

Federal Reserve Chair Janet Yellen said U.S. labor markets are far from healthy and suggested the Fed will keep monetary policy accommodative until hiring and wage data show the effects of the financial crisis are "completely gone".

The comments sent the U.S. dollar up broadly to the detriment of the loonie. The greenback was up 0.3 percent against a basket of currencies.

The Bank of Canada statement on Wednesday will be the biggest event of the week for Canada. While the central bank is widely expected to hold rates at 1 percent, investors will be watching to see if it reacts to recent stronger-than-expected inflation.

"Most people are expecting a cautious tone, some sort of discussion on export growth needing to pick up, inflation being strong but not too strong," said Rahim Madhavji, president at KnightsbridgeFX.com in Toronto.

"Many people are expecting a loonie-negative tone from the Bank of Canada." The Canadian dollar ended the North American session at C$1.0758 to the greenback, or 92.95 U.S. cents, weaker than Monday's close of C$1.0715, or 93.33 U.S. cents.

The loonie gained 1.6 percent through June in a rally fueled by the stronger-than-expected inflation data, higher oil prices and short-covering. But the currency's momentum stalled last week as it was hit hard by a report that showed the economy lost jobs in June.

Investors will be watching to see if the Bank of Canada and Governor Stephen Poloz address the Canadian dollar's recent strength.

"We're going to get a good sense tomorrow as to how Poloz feels about the strength of the Canadian dollar since the last meeting," Madhavji said.

"The more conservative way is to just talk about exports and that inadvertently discusses the loonie. The more direct way, which I don't think he'll do, is to talk about the Canadian dollar itself." Canadian government bond prices were mixed across the maturity curve, with the two-year unchanged to yield 1.099 percent. The benchmark 10-year was also flat to yield 2.216 percent.

(Editing by Peter Galloway)