The Canadian dollar edged lower against its U.S. counterpart on Thursday, pulling back from an earlier 10-day high, after domestic data showed retail sales rose far less than expected in September.

The 0.1 per cent increase was short of economists' forecasts for a gain of 0.9 per cent, while volumes fared worse, declining by 0.6 per cent.

"There are vulnerabilities in the [Canadian] economy," said Scott Lampard, head of Global Markets at HSBC Bank Canada. "If the consumer starts to crack ... that could expose some of these vulnerabilities."

The Bank of Canada has worried about the impact of higher interest rates on heavily indebted Canadians.

The central bank raised interest rates in July and September for the first time in seven years but has since turned more cautious about the outlook for the domestic economy.

Chances of another hike by the bank's March meeting dipped to 54 per cent from 60 per cent before the retail sales data, the overnight index swaps market indicated.

Investors will be looking to a speech by Bank of Canada Governor Stephen Poloz in December for clues on prospects for more rate hikes.

At 4 p.m. ET, the Canadian dollar was trading at $1.2718 to the greenback, or 78.63 cents US, down 0.1 per cent.

The currency's weakest level of the session was $1.2730, while it touched its strongest since Nov. 13 at $1.2673. The currency weakened despite higher prices for oil.

U.S. crude reached a two-year high at US$58.58 a barrel as the shutdown of a major crude pipeline from Canada and a draw on fuel inventories pointed to a tightening market.

Still, strong inflows of foreign money into Canadian stocks and bonds this year are adding to investor confidence that the rally since May in the country's currency is sustainable because it is not just supported by speculative flows.

Canadian government bond prices were higher across a slightly steeper yield curve, with the two-year up 4 cents to yield 1.435 per cent and the 10-year rising 11 cents to yield 1.892 per cent.

U.S. markets were closed for the Thanksgiving holiday.