CANADA FX DEBT-Canadian dollar weakens on renewed safe-haven demand

By Fergal Smith

TORONTO, March 5 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday as fading optimism the Middle East conflict would soon end revitalized demand for safe haven currencies, such as the greenback.

The loonie CAD= was trading 0.4% lower at 1.3690 per U.S. dollar, or 73.05 U.S. cents, after moving in a range of 1.3616 to 1.3716.

Wall Street's main indexes fell and the U.S. dollar .DXY rose against a basket of major currencies as the Middle East conflict entered its sixth day.

"Markets remain hypersensitive to Middle East headlines, and the hope for a quick de‑escalation increasingly looks like wishful thinking," said Kevin Ford, FX & macro strategist at Convera.

"Crude is grinding higher as doubts persist that naval escorts can fully safeguard flows through the Strait of Hormuz, leaving a durable risk premium embedded in price. That backdrop has pushed the USD to session highs, up against all G10 peers, including the loonie."

Higher oil prices have raised concerns of fresh inflation pressures that could reduce prospects of Federal Reserve interest rate cuts.

The price of oil CLc1 climbed 8.2% to $80.80 a barrel as the war disrupted supplies and shipping, driving some major producers in the Middle East to reduce output.

Canada is a major producer of oil, which has helped the loonie fare better in recent days than some other Group of 10 currencies. EUR-CAD EURCAD= touched its lowest level since August at 1.5799.

Still, trade uncertainty and a soft housing market remain headwinds for Canada's economy. Home sales in the Greater Toronto Area, which includes Toronto, Canada's most populous city, declined for a fifth straight month in February and prices continued to fall.

Canadian bond yields moved higher across the curve, tracking moves in U.S. Treasuries. The 10-year CA10YT=RR was up 5.5 basis points at 3.340%, after earlier touching its highest level since February 12 at 3.352%.