CANADA FX DEBT-Canadian dollar hits 2-1/2-month low as Middle East uncertainty spooks investors

By Fergal Smith

TORONTO, Sept 28 (Reuters) - The Canadian dollar weakened to a two-and-a-half-month low against its US counterpart on Monday as uncertain prospects for Middle East peace talks bolstered safe-haven demand for the greenback and as investors awaited domestic GDP data.

The loonie was trading 0.2% lower at 1.4165 per US dollar, or 70.60 US cents, after touching its weakest intraday level since July 9 at 1.4175.

• Qatari mediators are likely to hold separate talks with Iranian Foreign Minister Abbas Araqchi in New York and with the US side on Monday or Tuesday, an official briefed on the negotiations told Reuters, in a fresh push to end the war.

• "There's a hunkering down. Throughout markets, people are now digging in for the period through year-end and looking for safety from Iran and that tends to flow into US dollars," said Adam Button, chief currency analyst at investingLive.

• The US dollar held near a two-month high against a basket of major currencies as the US-Iran standoff pushed up oil prices and Treasury yields.

• "There's just these marginal buyers for US dollars," Button said. "They can come from equities, they can come from gold ... If you're a reserve manager you're deciding between gold and the US dollar. You're not deciding between the Canadian dollar and gold."

• Gold lost 3.7%, while US crude oil futures were trading 0.8% higher at $93.12 a barrel. Oil is one of Canada's major exports.

• Canadian GDP data for July, due on Tuesday, could help guide expectations for a Bank of Canada interest rate hike next month. Economists expect a flat reading compared to June.

• Canadian bond yields moved higher across the curve, tracking moves in US Treasuries. The 10-year was up 3.7 basis points at 3.962% after earlier touching its highest level since October 2023 at 4.017%.