TORONTO, March 27 (Reuters) - The Canadian dollar weakened to a two-month low against its U.S. counterpart on Friday, as investors awaited signs of de-escalation in the Middle East war, which has helped drive safe-haven demand for the greenback.
The loonie was trading 0.1% lower at 1.3875 per U.S. dollar, or 72.07 U.S. cents, after touching its weakest intraday level since January 19 at 1.3884. For the week, the currency was down 1.1%, putting it on track for its third straight weekly decline.
Iran's response to a U.S. peace proposal aimed at ending the war was expected later on Friday.
"The primary influence on the CAD remains the broader market environment and investors' continued demand for the relative safety of the USD," Shaun Osborne and Eric Theoret, strategists at Scotiabank, said in a note.
The U.S. dollar (.DXY), opens new tab was headed for its strongest monthly gain in almost a year, while the potential for the conflict to continue disrupting energy supplies helped lift U.S. crude oil futures by 4% to $98.29 a barrel.
Oil is one of Canada's major exports. About 70% of those exports flow to the U.S., but Canadian Prime Minister Mark Carney has pledged to reduce Canada's economic reliance on its southern neighbor.
Canada and South America's Mercosur bloc are advancing toward a free-trade agreement that could be signed by the end of this year, with another round of negotiations scheduled for next month in Brasilia, according to three sources familiar with the talks.
Canadian bond yields were mixed across a steeper curve. The 10-year was up 3.6 basis points at 3.593%, moving closer to the nearly two-year high it touched on Monday at 3.643%.
Reporting by Fergal Smith; Editing by Paul Simao
