CANADA FX DEBT-C$ dips as oil prices fall; rate decision awaited

    * Canadian dollar at C$1.2906, or 77.48 U.S. cents
    * Bond prices higher across the yield curve
    * Bank of Canada interest rate decision due Wednesday

    TORONTO, July 10 (Reuters) - The Canadian dollar dipped
against its U.S. counterpart on Monday as oil prices fell,
pulling back from a nearly 10-month high last week, while
investors awaited a Bank of Canada interest rate decision on
    Prices of oil, one of Canada's major exports, added to heavy
losses at the end of last week amid rising drilling activity in
the United States and no let-up in supply growth from exporters.
    U.S. crude        prices were down 0.81 percent at $43.87 a
    The U.S. dollar        climbed against a basket of major
currencies, boosted by robust jobs data on Friday, although
investors were wary of adding big positions before Federal
Reserve chief Janet Yellen's testimony this week.             
    At 9:06 a.m. ET (1306 GMT), the Canadian dollar          was
trading at C$1.2906 to the greenback, or 77.48 U.S. cents, down
0.2 percent.
    The currency traded in a range of C$1.2876 and C$1.2932.
    On Friday, the loonie touched its strongest in nearly 10
months at C$1.2860 after stronger-than-expected domestic jobs
data boosted chances of a rate increase as soon as this week.
    Forecasters are divided on whether the central bank will
hike rates on Wednesday but data from the OIS index swaps market
shows that money markets are almost fully priced for an
increase, while an 80 percent chance of a second hike has been
implied by December.                       
    After years of debt-happy Canadians being warned that
borrowing costs would have to rise eventually, they may be about
to face a reckoning if the Bank of Canada hikes rates this week,
as many expect.                 
    Speculators cut bearish bets on the loonie for a sixth
straight week, data from the U.S. Commodity Futures Trading
Commission and Reuters calculations showed on Friday. Canadian
dollar net short positions fell to 39,372 contracts as of July 3
from 49,495 a week earlier.
    Canadian government bond prices were higher across the yield
curve in sympathy with U.S. Treasuries and German Bunds, with
the two-year            up 3.5 Canadian cents to yield 1.146
percent and the 10-year             rising 17 Canadian cents to
yield 1.864 percent.
    On Friday, the 10-year yield touched its highest since June
2015 at 1.894 percent.   

 (Reporting by Fergal Smith; Editing by Bernadette Baum)