CANADA FX DEBT-Canadian dollar weakens for fifth straight day ahead of inflation data

By Fergal Smith

TORONTO, June 23 (Reuters) - The Canadian dollar weakened to a three-week low against its U.S. counterpart on Monday as investors weighed developments in the Middle East and awaited domestic inflation data that could offer clues on the Bank of Canada policy outlook.

The loonie CAD= was trading 0.1% lower at 1.3750 per U.S. dollar, or 72.73 U.S. cents, after touching its weakest intraday level since May 30 at 1.3798. The currency was headed for its fifth straight day of declines, which would be the longest such stretch since March.

Canada's consumer price index for May, due on Tuesday, is expected to hold steady at an annual rate of 1.7%. Much of the focus will be on the BoC's two core measures of inflation, which climbed in April above 3%.

"A softer print would bolster expectations that the Bank of Canada, having stayed its hand this month, could resume easing later in the summer — an outcome that would shave more yield support from the loonie," Karl Schamotta, chief market strategist at Corpay, said in a note.

Investors see a 35% chance the BoC will resume its easing campaign at the next policy decision on July 30 and are fully discounting a rate cut by October. 0#CADIRPR

The U.S. dollar .DXY seesawed against a basket of major currencies as dovish comments from a Federal Reserve policymaker offset safe-haven demand for the currency following the U.S. bombing of some nuclear sites in Iran.

The price of oil CLc1 pulled back from an earlier five-month high to trade 5.3% lower at $69.90 a barrel, as markets tried to gauge the impact on transit of oil and gas via the Strait of Hormuz. Canada is a major producer of oil and other sources of energy.

The Shell-led LNG Canada facility has produced its first liquefied natural gas for export in Kitimat, British Columbia, a spokesperson for the project confirmed on Sunday.

Canadian bond yields moved lower across the curve, tracking moves in U.S. Treasuries. The 10-year CA10YT=RR was down 6.6 basis points at 3.237%.