* Loonie touches weakest since April 15 at 1.3778

* Price of oil drops 6.5%

* Bond yields fall across the curve

By Fergal Smith

TORONTO, May 20 (Reuters) - The Canadian dollar steadied

near a five-week low against its U.S. counterpart on Wednesday,

as oil prices fell on increased hopes of a deal to end the

Middle East conflict and after softer-than-expected domestic

inflation data the day before.

The loonie was trading nearly unchanged at 1.3750 per

U.S. dollar, or 72.73 U.S. cents, after earlier touching its

weakest intraday level since April 15 at 1.3778.

"Yesterday's CPI data surprised on the downside and

continues to weigh on the CAD," Shaun Osborne and Eric Theoret,

strategists at Scotiabank, said in a note.

"The data point to the Bank remaining on the policy

sidelines for now but rising global price pressures are unlikely

to pass Canada by in the months ahead."

Data on Tuesday showed that Canada's consumer price index

increased at an annual rate of 2.8% in April, falling short of

the 3.1% rate that analysts had expected, and that key measures

of underlying price pressures eased.

The swap market has priced in about 40 basis points of

tightening from the BoC this year, down from 54 basis points

before the inflation data. The central bank has said that it

might have to respond with consecutive interest rate hikes if

oil prices stay high and begin pushing up inflation.

U.S. crude oil futures fell 6.5% to 97.35 a barrel on

Wednesday and the U.S. dollar gave back some recent gains

against a basket of major currencies after U.S. President Donald

Trump said that negotiations with Iran were in the final stages.

Oil is one of Canada's major exports.

Canadian bond yields fell across the curve, tracking moves

in U.S. Treasuries. The 10-year was down 12.4 basis

points at 3.580%, extending its pullback from a two-year high

during Tuesday's session at 3.744%.