CANADA FX DEBT-C$ inches higher, bonds mixed ahead of US data
* C$ edges up to C$0.9865 to the U.S. dollar, or $1.0137
* Bond prices mixed
* BoC rate views shifting; BMO, RBC see 2012 hikes
By Ka Yan Ng
TORONTO, Aug 12 (Reuters) - Canada's dollar was mildly firmer against the U.S. currency on Friday, while bonds were mixed, as market volatility lessened ahead of data on U.S. retail sales.
"We're basically starting the day where we left off yesterday. Most markets are relatively calm, certainly relative to what we've seen in recent days," said Doug Porter, deputy chief economist at BMO Capital Markets.
"Although there have been a few times this week where things have seemed calm on the surface at the start of the day only to have yet another wild ride on this rollercoaster that we've been on for much of the last three weeks."
At 8:05 a.m. (1205 GMT), the Canadian dollar CAD=D4 was at C$0.9865 to the U.S. dollar, or $1.0137, up from C$0.9883 to the U.S. dollar, or $1.0118, at Thursday's close.
Canada's two-year bond CA2YT=RR was off 3 Canadian cents to yield 0.926 percent, while the 10-year bond CA10YT=RR edged up 30 Canadian cents to yield 2.425 percent.
U.S. retail sales for July, due at 8:30 a.m., could set the tone with no Canadian data on tap. The retail sales data is expected to show a 0.5 percent rise overall, or 0.2 percent excluding auto sales. Both metrics represent gains from the previous month.
The preliminary August Thomson Reuters/University of Michigan Surveys of Consumers sentiment index will also be released, and is seen at 63 versus 63.7 in the previous month. The report comes at 9:55 a.m.
Canadian overnight index swaps, which are based on expectations for the Bank of Canada's key policy rate, have fully priced in odds of a 25 basis point rate cut later this year on mounting fears of a global slowdown. However, the odds have been pared back in recent sessions. BOCWATCH
Many economists expect Canadian interest rates are likely to stay low for longer, as a rate cut would send all the wrong signals for an economy that is growing, albeit slowly, and could hurt the central bank's credibility. [ID:nN1E77915R]
Porter said the Bank of Canada will likely remain on the sidelines until the second quarter next year, and then raise once per quarter in 2012.
"I don't think the market pricing is wildly unreasonable. There is a far outside risk that the bank could cut in a real emergency whereas it's very tough to see them raising rates," he said.
RBC Capital Markets said late on Thursday in a report that based on current conditions, the priced-in rate cuts appear "wholly unjustified." It also forecast the Bank of Canada will delay its first rate hike until the second quarter of 2012. (Reporting by Ka Yan Ng, Editing by Chizu Nomiyama)
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