CANADA FX DEBT-Canadian dollar hits a three-month low as investors trim US rate cut bets

By Fergal Smith

TORONTO, Aug 21 (Reuters) - The Canadian dollar weakened to a three-month low against its U.S. counterpart on Thursday as signs of U.S. economic resilience helped underpin the greenback ahead of potential clues on the Federal Reserve policy outlook.

The loonie CAD= was trading 0.2% lower at 1.39 per U.S. dollar, or 71.94 U.S. cents, after touching its weakest intraday level since May 21 at 1.3907.

"There is a confluence of factors weighing on CAD this week," said Kyle Chapman, FX markets analyst at Ballinger & Co in London. "Canadian inflation was a touch weaker than expected in July, we are seeing a dip in the equity markets, and the U.S. economy appears to have been more resilient than expected in August."

U.S. business activity picked up pace in August, led by a resurgent manufacturing sector that saw the strongest growth in orders in 18 months, while the S&P 500 was on track for its fifth straight day of declines.

Investors awaited a speech by Fed Chair Jerome Powell, set for Friday, at the annual Jackson Hole economic symposium in Wyoming.

Data on Tuesday showed that Canada's annual inflation rate eased to 1.7% in July and that three-month annualized measures of underlying inflation closely watched by the Bank of Canada decelerated sharply.

"Markets have been trimming their easing bets a touch in the U.S. while raising them for the Bank of Canada, and the week's cautious mood has favoured the U.S. dollar," Chapman said.

The U.S. dollar .DXY climbed to a 10-day high against a basket of major currencies.

Not all was negative for the loonie. The price of oil CLc1, one of Canada's major exports, increased 0.8% to $63.20 a barrel.

Canadian bond yields moved higher across the curve, tracking moves in U.S. Treasuries. The 10-year CA10YT=RR was up 3.7 basis points at 3.493%.