August 12, 2011 / 12:22 PM / in 9 years

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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