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The Canadian dollar weakened to its lowest in more than one week against its U.S. counterpart on Friday as investors guarded against the risk that the Federal Reserve would shift next week to a less dovish stance.

Money markets expect the Fed to cut interest rates next Wednesday, but they have been scaling back the amount of additional easing they see over the coming year.

“The U.S. dollar is in demand because the market increasingly believes that the Federal Reserve won’t cut interest rates as much as previously thought,” said Adam Button, chief currency analyst at ForexLive. “That is reflected in USD-CAD more than anywhere else.”

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U.S. retail sales increased more than expected in August, pointing to solid consumer spending that should continue to support a moderate pace of economic growth.

At 2:57 p.m. (1857 GMT), the Canadian dollar was trading 0.5 per cent lower at 1.3277 to the greenback, or 75.32 U.S. cents. The currency, which touched its weakest intraday level since Sept. 4 at 1.32783, was down 0.8 per cent for the week.

The decline for the loonie came as data from Statistics Canada showed that the ratio of Canadian household debt-to-income widened to a record 174.1 per cent in the second quarter from a downwardly revised 172.8 per cent in the first quarter and that the debt service ratio rose to 14.9 per cent.

“That means there’s now a reduced share of disposable income left for households to spend on things other than debt servicing,” Krishen Rangasamy, a senior economist at National Bank Financial, said in a note.

The Bank of Canada has worried that a pick-up in housing activity, due to lower mortgage rates in recent months, could add to the debt burden of Canadians.

The high debt loads and depleted savings of Canadians look set to crimp their spending for as long as decades, economists say.

Meanwhile, the price of oil, one of Canada’s major exports, added to this week’s decline on worries about slowed global economic growth. U.S. crude oil futures settled 0.4 per cent lower at $54.85 a barrel.

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Canadian government bond prices were lower across a steeper yield curve in sympathy with U.S. Treasuries. The two-year

fell 6.5 Canadian cents to yield 1.641 per cent and the 10-year was down 64 Canadian cents to yield 1.517 per cent.

The 10-year yield touched its highest intraday level since July 19 at 1.521 per cent.

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