CANADA FX DEBT-Canadian dollar hits near 3-week low as Middle East conflict drives safe-haven demand

By Fergal Smith

TORONTO, June 19 (Reuters) - The Canadian dollar weakened to a near three-week low against its U.S. counterpart in holiday-thinned trading on Thursday as the ongoing conflict between Iran and Israel bolstered safe-haven demand for the American currency.

The loonie CAD= was trading 0.3% lower at 1.3735 per U.S. dollar, or 72.81 U.S. cents, after touching its weakest intraday level since May 30 at 1.3746. On Monday, the currency touched an eight-month high at 1.3537.

"The Canadian dollar has seen a sharp rally recently, so some consolidation or modest retracement is to be expected," said Tony Valente, senior FX dealer at AscendantFX, adding that geopolitical tensions have boosted demand for the U.S. dollar and that the U.S. holiday has reduced market liquidity.

Wall Street and the U.S. bond market were closed for the Juneteenth National Independence Day holiday.

The U.S. dollar .DXY added to this week's gains against a basket of major currencies while the price of oil, one of Canada's major exports, was up 2.8% at $77.25 a barrel as the Middle East conflict threatened oil supplies.

Canadian retail sales data, due on Friday, could offer clues on the strength of the domestic economy. Analysts expect an increase of 0.5%.

On Wednesday, Bank of Canada Governor Tiff Macklem said the prospect of a new Canada-U.S. trade deal offers hope that trade tariffs will be removed, but cautioned that inflation could rise if duties stayed in place. Investors see a roughly 75% chance that the central bank will remain on hold at an interest rate decision next month. 0#CADIRPR

Canadian government bond yields edged lower across the curve, with the 10-year CA10YT=RR down less than one basis point at 3.328%.