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Canadian dollar extends weekly decline as retail sales sag

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto

TORONTO (Reuters) - The Canadian dollar 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% 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%.

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% 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% 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% decrease.

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

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

(Reporting by Fergal Smith; editing by Jonathan Oatis)