TORONTO, March 26 (Reuters) - The Canadian dollar weakened to a two-month low against its U.S. counterpart on Thursday as fading optimism for an early end to the Middle East war weighed on risk-sensitive currencies.
The loonie was trading 0.3% lower at 1.3850 per U.S. dollar, or 72.20 U.S. cents, marking the fourth straight day of declines. The commodity-linked currency touched its weakest intraday level since January 20 at 1.3857.
"High-beta FX is weaker as traders prepare for a likely extension in the Iran war and what that means for policymakers," said Amo Sahota, director at Klarity FX in San Francisco. "It demonstrates fading confidence in the U.S. jawboning empty peace deals."
A U.S. proposal for ending nearly four weeks of fighting is "one-sided and unfair," a senior Iranian official told Reuters.
High-beta FX includes currencies considered more sensitive than average to market moves. Other commodity-linked currencies, including the Australian dollar and the New Zealand dollar , posted steeper declines.
The U.S. dollar (.DXY), benefited from safe-haven demand to notch gains against a basket of major currencies, while the price of oil settled 4.6% higher at $94.48 a barrel. Oil is one of Canada's major exports.
Investors have worried that a prolonged Middle East conflict could continue to disrupt energy supplies and fuel inflation.
Last Wednesday, the Bank of Canada said it was too early to assess the effect of the war.
Carolyn Rogers, the central bank's senior deputy governor, on Thursday said the central bank would have "a tough job" tackling the structural changes, including increased U.S. trade protectionism, that were set to permanently alter the country's economic landscape.
Canadian bond yields moved higher across the curve, tracking moves in U.S. Treasuries. The 10-year was up 8.4 basis points at 3.570%.
Reporting by Fergal Smith, Editing by Nick Zieminski
