CANADA FX DEBT-C$ mildly weaker in less volatile start
* C$ dips to C$0.9818 to the U.S. dollar, or $1.0185
* Bonds mixed as rates outlook reassessed
* Canada holds three-year bond auction at noon
By Ka Yan Ng
TORONTO, Aug 10 (Reuters) - The Canadian dollar eased against the U.S. currency on Wednesday morning on mixed signals in the broader market, but looked set for a relatively less volatile session.
There were no Canadian data releases on tap, leaving the commodity-linked currency to trade off the price of oil, an important Canadian export, as well on broader sentiment.
The outlook was mixed as investors, rattled by a run of heavy losses, took comfort from the Federal Reserve's pledge to keep interest rates near zero for two more years and pushed up world stocks.
They also welcomed data showing China's export growth accelerating in July, calming fears that weak demand from Europe and the United States would hit the world's second-biggest economy. [ID:nL3E7JA0GZ] [MKTS/GLOB]
But North American stock indexes suggested a soft open, while the price of crude soared around 4 percent. [.N] [O/R]
Although weaker from the previous session, the currency was in a relatively mild range compared to the last four sessions that had knocked the Canadian dollar down more than 4 cents. So far, it has traded a 78-point range, between C$0.9781 and C$0.9859.
"The market's probably got a little bit of time to analyse the Fed comments from yesterday. It was also reasonably quiet in terms of news overnight as well," said Shane Enright, executive director, foreign exchange sales at CIBC World Markets.
"It's been pretty relentless in terms of volatility in the last week or so. There might be some opportunity over the next 24 hours just for markets to consolidate a little bit."
Enright put the range between C$0.9790-9870 during the North American session.
At 7:55 a.m. (1155 GMT), the Canadian dollar CAD=D4 was sitting around the middle of the session's range at C$0.9818 to the U.S. dollar, or $1.0185, down from Tuesday's session close at C$0.9789 to the U.S. dollar, or $1.0216.
Canada's two-year bond CA2YT=RR fell 10 Canadian cents to yield 0.847 percent, while the 10-year bond CA10YT=RR gained 6 Canadian cents to yield 2.451 percent.
The mixed performance of Canadian government bonds reflect some repricing of Bank of Canada interest rate expectations.
In the Canadian overnight index swaps market, which is based on expectations for the Bank of Canada's key policy rate, traders have fully priced in odds of a rate cut later this year on mounting fears of a global slowdown. BOCWATCH
The possibility that the Fed will hold interest rates lower for longer may also mean the Bank of Canada will do the same since the two economies are so closely tied.
"What it means for the BoC is that we have even greater conviction toward our forecast that the BoC is on hold until next spring or possibly much longer," wrote Scotia Capital economists Derek Holt and Karen Cordes Woods on Wednesday.
"Whether they cut or maintain a longer hold is six-and-one-half-dozen of the other for the most part. The market has mostly caught up to this view in recent weeks, but perhaps not fully across the whole front end and that could justify taking down (three year bonds) at auction today."
The Bank of Canada will auction C$3 billion of three-year bonds at noon. (Reporting by Ka Yan Ng, Editing by Chizu Nomiyama)
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