CANADA FX DEBT-C$ mildly weaker in less volatile start

Wed Aug 10, 2011 8:28am EDT
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 * 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
 "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
 "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)