CANADA FX DEBT-Canadian dollar heads for weekly decline as retail sales fall

By Fergal Smith

TORONTO, Nov 21 (Reuters) - The Canadian dollar steadied against its U.S. counterpart on Friday but was headed for a weekly decline, as oil prices fell and domestic data showed retail sales reversing a large part of the previous month's gain.

The loonie CAD= was trading nearly unchanged at 1.4090 per U.S. dollar, or 70.97 U.S. cents, after touching its weakest intraday level since November 6 at 1.4130. For the week, the loonie was on track to decline 0.5%, which would be its largest weekly decline in eight weeks.

Canadian retail sales fell 0.7% in September from August, matching expectations, after 1% growth in the previous month. A preliminary estimate showed a flat reading for October.

On Monday, the October consumer price index report showed inflation cooling to an annual rate of 2.2%.

"A busy week of data releases has left us more confident in our view that the Bank of Canada will feel the need to cut its policy rate below neutral at some point next year to support the economy," Bradley Saunders, North America economist at Capital Economics, said in a note.

"Not least given that the federal budget, which survived its crucial parliamentary vote on Monday, features little in the way of short-term stimulus measures."

The Canadian Parliament on Monday narrowly voted in favor of Prime Minister Mark Carney's first budget, staving off the threat of a second election in less than a year.

The U.S. dollar .DXY edged higher against a basket of major currencies, adding to its recent gains, amid an uncertain outlook for U.S. interest rates.

The price of oil CLc1, one of Canada's major exports, was trading 1.9% lower at $57.88 a barrel as the U.S. pushed for a Russia-Ukraine peace deal that could boost global oil supplies.

Canadian bond yields edged lower across the curve.

The 10-year CA10YT=RR was down 0.7 basis points at 3.221%, while the gap between it and the U.S. equivalent decreased by 1.5 basis points to roughly 86 basis points in favor of the U.S. note, which was the smallest gap since mid-September.