By Louise Egan

OTTAWA, April 30 (Reuters) - The Bank of Canada is on track for further interest rate cuts but the timing will depend on factors largely beyond Canada's borders, Governor Mark Carney said on Wednesday.

In testimony to a parliamentary committee shortly after the U.S. Federal Reserve cut its federal funds rate by a quarter point to 2 percent, Carney emphasized the strengths of the Canadian economy compared with the "number of challenges" facing the U.S. economy.

Strong employment and domestic demand in Canada will help motor the economy through a protracted U.S. slowdown, he said.

"We're seeing strength in our economy and I would say that the relative importance of domestic demand in the economy is the type of force that continues to support this type of employment -- services sector, construction and ... natural resources," he said.

Over the past five years, 16 percent of jobs in the manufacturing sector have been lost, Carney said. In the same period, however, the economy added 1.5 million jobs in the services sector and another 300,000 in other goods-producing sectors like construction and natural resources, he said.

"Because the employment picture is quite healthy, there is a circularity here. That is one of the reasons we see some strong momentum in domestic demand."

Inflation, which has been unusually low relative to other major economies hit by food price hikes, is actually already hitting the bank's 2 percent target when one-off factors such as discounts on car prices and a sales tax cut are stripped out, Carney said.

However, the bank is equally concerned about the possibility of below-target inflation as it is about any unexpected spike in inflation.