TORONTO, April 2 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday as optimism faded that the war in the Middle East might end soon and data showed an unexpected widening in Canada's trade deficit.
The loonie was trading 0.4% lower at 1.3925 per U.S. dollar, or 71.81 U.S. cents, after moving in a range of 1.3870 to 1.3933. The currency on Tuesday touched nearly a four-month low at 1.3966.
Dozens of countries are seeking ways to restart vital energy shipments through the Strait of Hormuz after U.S. President Donald Trump vowed in a speech late on Wednesday to deliver more aggressive strikes on Iran, pushing oil prices back up.
"CAD is weakening in line with broad USD strength after Trump's remarks, which indicate that the war can be extended and there is room for further escalation," said Jayati Bharadwaj, a global FX strategist at TD Securities.
"While Canada is a net oil exporter and the moves in oil prices are less penalizing than for other countries, the safe-haven bid in the dollar is overpowering."
The U.S. dollar (.DXY), rose against a basket of major currencies. U.S. West Texas Intermediate crude oil futures were trading 8.7% higher at $108.79 a barrel while Brent crude futures were up 4.8% at $106.03.
Canada's trade deficit widened to C$5.74 billion ($4.12 billion) in February from an upwardly revised C$4.18 billion in the prior month, as a surge in gold purchases abroad pushed imports to a record high. Analysts had forecast a deficit of C$2.25 billion.
"Net trade will likely be a negative for Q1 GDP due to the surge in imports," Andrew Grantham, a senior economist at CIBC Capital Markets, said in a note. "However, that's also likely a sign of restocking following the inventory drawdown that was a large drag on GDP in the previous quarter."
Canadian bond yields moved lower across a flatter curve, with the 10-year down 4.8 basis points at 3.455%.
Reporting by Fergal Smith; Editing by Paul Simao
