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The Canadian dollar CADUSD weakened to its lowest level in more than two years against its U.S. counterpart on Friday as the sell-off in global equity markets continued and domestic data showed retail sales falling more than expected in July.

The loonie was trading 0.3 per cent lower at 1.3525 to the greenback, or 73.94 U.S. cents, after touching its weakest since July 2020 at 1.3551. For the week, the currency was headed for a decline of 2 per cent.

Stocks hit two-year lows and the U.S. dollar scaled a two-decade high against a basket of major currencies as investors feared bigger interest rate rises are on their way to tame inflation.

Canada is a major producer of commodities, including oil, so the loonie tends to be particularly sensitive to shifts in investor sentiment.

U.S. crude prices were down 4.4 per cent at $79.8 a barrel, trading at levels not seen since January, on demand fears as rising interest rates risked tipping major economies into a recession.

Canadian retail sales fell by 2.5 per cent in July from June on lower sales at gasoline stations, as well as clothing and clothing accessories stores, Statistics Canada said. Analysts had forecast a 2.0 per cent decrease.

Preliminary estimates for August were mixed, showing retail sales up by 0.4 per cent but factory sales falling 1.8 per cent.

Canadian government bond yields were lower across a flatter curve. The 10-year fell 8.2 basis points to 3.046 per cent, which left it 7.1 basis further below the equivalent U.S. rate at a gap of 65.1 basis points.

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