C$ hits 2-week low as Fed officials lean hawkish



* Canadian dollar weakens 0.2% against the greenback

* Touches its weakest since Aug. 5 at 1.2966

* Price of U.S. oil settles 2.7% higher

* Canadian producer prices fall by 2.1% in July

By Fergal Smith

TORONTO, Aug 18 (Reuters) - The Canadian dollar weakened to its lowest level in nearly two weeks against its U.S. counterpart on Thursday as comments by Federal Reserve officials on the outlook for interest rates bolstered the greenback against a basket of major currencies.

The loonie CAD= was trading 0.2% lower at 1.2940 to the greenback, or 77.28 U.S. cents, after touching its weakest since Aug. 5 at 1.2966.

Fed policymakers are "pushing the market's perception" of a more aggressive rate hike at the September policy announcement than had been expected after softer-than-expected inflation data last week, said Michael Goshko, senior market analyst at Convera Canada ULC.

St. Louis Fed President James Bullard was reported to have said he is leaning towards a 75 basis points hike next month, while San Francisco Federal Reserve President Mary Daly said that raising rates by either 50 or 75 basis points would be "reasonable."

The U.S. dollar currency index .DXY notched a three-week high.

The loonie lost ground even as the price of oil, one of Canada's major exports, was supported by robust U.S. fuel consumption data. U.S. crude CLc1 prices settled 2.7% higher at $90.50 a barrel.

Domestic data showed that producer prices fell by 2.1% in July from June. Still, they were up 11.9% on an annual basis.

Canadian inflation is not likely to return to the central bank's 2% target until 2024 after possibly peaking in June, as less volatile items like wages and rent displace energy as key sources of price pressure, analysts say.

Canadian retail sales data for June, due on Friday, could offer more clues on the domestic economy's outlook.

Canadian government bond yields were mixed across the curve. The 10-year CA10YT=RR eased nearly one basis point to 2.852%, after touching on Wednesday its highest intraday level in more than three weeks at 2.890%.
Reporting by Fergal Smith; Editing by Alison Williams and Grant McCool

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