Canadian dollar firms as inflation climbs to 18-year high

* Canadian dollar strengthens 0.2% against the greenback

* Canada's annual inflation rate accelerates to 4.1% in August

* Price of U.S. oil rises 2.1%

* Canadian bond yields rise across the curve

TORONTO, Sept 15 (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Wednesday as oil prices rose and domestic data showed inflation climbing to its highest level in 18 years.

Canada's annual inflation rate accelerated to 4.1% in August, its highest since March 2003, boosted in part by a big jump in gasoline prices, Statistics Canada said.

The Bank of Canada's three measures of core inflation all posted gains, but analysts expect the central bank to stick to the view that the factors pushing up inflation are transitory.

The price of oil, one of Canada's major exports, rose after industry data showed a larger-than-expected drawdown in U.S. crude inventories and on expectations demand will rise as vaccination rollouts widen.

U.S. crude CLc1 prices were up 2.1% at $71.92 a barrel, while the Canadian dollar CAD= was trading 0.2% higher at 1.2672 to the greenback, or 78.91 U.S. cents. It traded in a range of 1.2664 to 1.2708.

Separate data showed that Canadian home sales fell 0.5% in August from July, though the average selling price rose on a month-over-month basis for the first time since March.

Canadian government bond yields were higher across the curve, with the 10-year CA10YT=RR up 2.3 basis points at 1.195%.

The gap between Canada's 10-year yield and its U.S. equivalent narrowed by 1.8 basis points to 8.9 basis points in favor of the U.S. bond, the smallest gap since Aug. 31.
Reporting by Fergal Smith; editing by Jonathan Oatis

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