TORONTO: The Canadian dollar dipped against its US 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 Wednesday.
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.
US crude prices were down 0.81 percent at $43.87 a barrel.
The US 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 US 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 US 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 US 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.
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