CANADA FX DEBT-C$ dips as Bank of Canada rate decision in focus

    * Canadian dollar at C$1.2888, or 77.59 U.S. cents
    * Bond prices mixed across the yield curve
    * Bank of Canada interest rate decision due Wednesday

    By Solarina Ho
    TORONTO, July 10 (Reuters) - The Canadian dollar dipped
against its U.S. counterpart on Monday, easing slightly from a
nearly 10-month high last week, as investors awaited a Bank of
Canada interest rate decision on Wednesday.
    At 4 p.m. (2000 GMT), the Canadian dollar          was
trading at C$1.2888 to the greenback, or 77.59 U.S. cents, down
0.1 percent.
    The currency traded in a range of C$1.2870 and C$1.2932.
    After years of being warned that borrowing costs would have
to rise eventually, debt-happy Canadians may be about to face a
reckoning if the Bank of Canada hikes rates this week.
    Forecasters are divided on whether the central bank will
raise rates on Wednesday, but data from the overnight 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.                       
    "We're struggling to buy into a hawkish narrative from the
Bank of Canada," said Amo Sahota, director at Klarity FX in San
    "They may just only be taking back the 2015 rate cut, not
necessarily moving into a full tightening cycle," he said,
adding the Canadian economy was not ready for an aggressive
move, given lingering signs of a lack of business investment,
concerns over inflation and uncertainty over North American Free
Trade Agreement negotiations.
    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, also on Wednesday.
    "This is a big week for evaluating how hawkish the hawks
really want to be," said Sahota.
    On Friday, the loonie touched its strongest level 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.
    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 mixed across the yield
curve, with the two-year            up 2 Canadian cents to yield
1.154 percent and the 10-year             down 3 Canadian cents
to yield 1.888 percent.

 (Additional reporting by Fergal Smith; Editing by Bernadette
Baum and Peter Cooney)