TORONTO, Sept 1 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday as investors bet on a Federal Reserve interest rate hike next month, while a sell-off in global bond markets helped underpin domestic borrowing costs ahead of a Bank of Canada interest rate decision.
The loonie was trading 0.4% lower at 1.3905 per U.S. dollar, or 71.92 U.S. cents, putting it among the biggest decliners in the Group of 10 currencies.
"The loonie is clearly a laggard in G10 FX today as traders continue to increase bets that the Fed will have to raise interest rates in September to meet its 2% target," said Amo Sahota, director at Klarity FX in San Francisco.
"Meanwhile the BoC is expected to remain on hold tomorrow at 2.25%, but may introduce a slightly more dovish tone given the escalation in the trade war with the U.S.," Sahota said.
The U.S. needs to start being serious and stop trying to be tough before talks on a possible trade deal with Canada can restart, Prime Minister Mark Carney told reporters.
Investors expect the Bank of Canada to leave its benchmark interest rate on hold at 2.25% on Wednesday despite recent GDP data that showed the economy growing at a faster pace than the central bank had forecast.
Canada's manufacturing sector expanded for a fifth straight month in August as output and employment rose but increased trade tensions cast doubt on the pace of growth being sustained, data on Tuesday showed.
The price of oil, one of Canada's major exports, rose to a near six-week high as a resumption in fighting between the United States and Iran in the Middle East renewed fears of supply disruptions from the oil-producing region. U.S. crude oil futures were trading 4.4% higher at $89.53 a barrel.
The Canadian 10-year yield was up 1.5 basis points at 3.754%, after earlier touching its highest level since May 2024 at 3.790%.
Reporting by Fergal Smith; Editing by Alistair Bell
