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The Canadian dollar rose against its U.S. counterpart on Friday, coming close to a near three-year high posted in January, as the greenback broadly fell and investors shrugged off domestic data showing a bigger-than-expected drop in retail sales. .

The loonie was trading 0.5 per cent higher at 1.2617 to the greenback, or 79.26 U.S. cents, having traded as strong as 1.2594. Last month, it touched its strongest since April 2018 at 1.2586.

For the week, the loonie was up 0.6 per cent. It could have room for additional gains, strategists at Scotiabank, including Shaun Osborne, said in a note.

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“The constructive trend in commodity prices overall plus more supportive yield spreads over the USD leave the CAD looking somewhat undervalued at least against the USD and some catch up seems likely,” said the strategists.

The gap between Canadian and U.S. 2-year yields has climbed about 10 basis points since January to 12 basis points in favor of the Canadian bond.

The safe-haven U.S. dollar fell against a basket of major currencies after risk appetite was stoked by better-than-expected economic data.

Global shares climbed, while U.S. crude oil futures settled 2.1 per cent lower at $59.24 a barrel, retreating further from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather and power outages.

Canadian retail sales fell 3.4 per cent in December, the biggest monthly drop since April, as COVID-19 restrictions hit businesses, Statistics Canada said. Analysts had forecast a 2.5 per cent decline.

Preliminary estimates for January showed that retail sales fell 3.3 per cent, while wholesale trade was up 5.3 per cent.

Canadian government bond yields were higher across a steeper curve in sympathy with U.S. Treasuries. The 10-year touched its highest since February last year at 1.219 per cent before dipping to 1.211 per cent, up 6.3 basis points on the day.

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