CANADA FX DEBT-Canadian dollar hits a two-week low as investors brace for potential rate cut

TORONTO, Sept 10 (Reuters) - The Canadian dollar weakened to a two-week low against its U.S. counterpart on Wednesday as expectations the Bank of Canada would resume its easing cycle offset higher oil prices.

The loonie CAD= was trading 0.1% lower at 1.3860 per U.S. dollar, or 72.15 U.S. cents, after touching its weakest intraday level since August 26 at 1.3867.

"The market is readying itself for a Bank of Canada rate cut," said Amo Sahota, a director at Klarity FX in San Francisco. "That's weighing on the loonie just a little bit but not by a sufficient amount to get us really motoring along."

Investors see a roughly 90% chance that the BoC will lower interest rates next Wednesday after recent employment data showed that tariff-related uncertainty is taking a toll on the domestic economy. The central bank has been on hold since cutting its benchmark rate to 2.75% in March.

The Fed is also due to make a policy decision next Wednesday. Expectations of a rate cut were supported by data showing that U.S. producer prices unexpectedly fell in August.

"If the U.S. is in a position where it's having to cut interest rates it's very rare for Canada to just be sitting on the sidelines," Sahota said.

Canada sends about 75% of its exports to the U.S., including oil CLc1, which settled 1.7% higher at $63.67 a barrel on rising geopolitical tensions.

Canadian bond yields moved lower across a flatter curve. The 10-year CA10YT=RR was down 6.3 basis points at 3.174%, after earlier touching its lowest level since May 16 at 3.157%.