TORONTO, May 19 (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Friday but held on to much of its weekly gain, as domestic data showed retail sales fell in March and negotiations to raise the U.S. debt ceiling paused.
The loonie edged 0.1% lower to 1.3510 to the greenback, or 74.02 U.S. cents, after trading in a range of 1.3470 to 1.3523.
For the week, it was up 0.3%, after data on Tuesday showed the annual inflation rate increased in April for the first time in 10 months.
"The rise in the Canadian inflation rate, reported earlier this week, has increased the odds of a Bank of Canada rate hike," said Tony Valente, a senior FX dealer at AscendantFX.
Money markets see a roughly 40% chance that the Bank of Canada will raise its benchmark interest rate further by September. Before the inflation data, the next move in rates was expected to be a cut.
Canadian retail sales fell 1.4% in March from February on lower sales at motor vehicles and parts dealers, as well as gasoline stations, Statistics Canada said on Friday. A preliminary estimate showed sales rising 0.2% in April.
The price of oil , one of Canada's major exports, settled 0.4% lower at $71.55 a barrel, while Wall Street erased earlier gains as the pause in debt ceiling talks dampened hopes that a deal could be reached soon to avoid a calamitous default.
Canadian government bond yields eased across the curve. The 10-year was down 3.9 basis points at 3.136%, after it touched on Thursday its highest intraday level in more than two months at 3.226%.
Reporting by Fergal Smith; Editing by Richard Chang
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