TORONTO, May 21 (Reuters) - The Canadian dollar weakened to a five-week low against its U.S. counterpart on Thursday as hopes receded of a swift end to the war in the Middle East and after a domestic measure of small business optimism dropped to a one-year low.
The loonie was trading 0.2% lower at 1.3775 per U.S. dollar, or 72.60 U.S. cents, after touching its weakest intraday level since April 13 at 1.3800.
"The risk of peace talks stalling once more, a pattern we have seen repeatedly in recent months, keeps our bias for USD-CAD risks skewed higher, absent meaningful de-escalation in the Gulf," strategists at Monex Europe said in a note.
The U.S. dollar (.DXY), added to recent gains against a basket of major currencies and the price of oil was trading 2.1% higher at $100.32 a barrel after Iran's Supreme Leader issued a directive that the country's near-weapons-grade uranium must not be sent abroad, hardening Tehran's stance.
Oil is one of Canada's major exports but the Bank of Canada says that the benefit to the economy from higher oil prices is offset by increased inflation.
The Canadian Federation of Independent Business said its Business Barometer long-term index, which is based on 12-month forward expectations for business performance, fell to 46.3 in May from 58.0 in April, marking its lowest level since May last year.
Canadian retail sales data for March, due on Friday, could offer more clues on the state of the domestic economy which has been buffeted by trade uncertainty and a housing market downturn. Economists expect a gain of 0.6% after sales rose 0.7% in February.
Canadian government bond yields were mixed across the curve. The 10-year was barely changed at 3.589% after pulling back from a two-year high of 3.744% on Tuesday.
Reporting by Fergal Smith; Editing by Cynthia Osterman
