TORONTO, Sept 2 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday as long-term borrowing costs climbed globally and investors weighed prospects of a Bank of Canada interest rate cut this month.
The loonie was trading 0.3% lower at 1.3790 per U.S. dollar, or 72.52 U.S. cents, after touching its weakest intraday level since last Wednesday at 1.3815.
Chances of a BoC rate cut at a policy decision on September 17 have increased to roughly 50%, swap market data showed. They were at 40% before the release of domestic data on Friday that showed Canada's economy contracting at a steeper-than-expected pace in the second quarter.
The central bank last eased policy in March, lowering the benchmark rate to 2.75%.
"What we've seen happen is that the market is moving toward pricing in a greater chance of a rate cut from the Bank of Canada this month," said Marc Chandler, chief market strategist at Bannockburn Global Forex.
U.S. 30-year Treasury yields jumped to their highest levels since mid-July, at just shy of 5%, in line with advances in European and UK bond yields, as investors feared that governments in major economies around the world are losing control over their fiscal deficits.
"With the stock market selling off sharply, with bonds selling off sharply it just adds to this sense of unease," Chandler said. "In a rising interest rate environment the (U.S.) dollar tends to do better."
Still, the loonie's decline was less than for all the other Group of 10 currencies as the price of oil settled 2.5% higher at $65.59 a barrel. Oil is one of Canada's major exports.
Canadian bond yields tracked U.S. Treasury yields higher across a steeper curve. The 10-year was up 8.5 basis points at 3.460%.
Reporting by Fergal Smith, Editing by Nick Zieminski
