The Canadian dollar pared some gains against its U.S. counterpart on Friday after domestic data indicated the country's central bank does not have to raise rates rapidly.

Canada's annual inflation rate rose to 1.4 per cent last month from 1.2 per cent in July. That was slightly below economists' forecasts of 1.5 per cent, although two out of three of the central bank's core inflation measures also increased.

Retail sales rose 0.4 per cent in July, topping economists' expectations for a gain of 0.1 per cent, but volumes showed a 0.2 per cent decline.

"The Bank (of Canada) is going to be looking at the retail data as maybe an indication that they don't need to go on an exceptionally quick path toward normalization," said Andrew Kelvin, senior rates strategist at TD Securities. "It's not so weak a print that it's going to preclude further tightening this year."

The central bank raised rates earlier in September for the second time in three months after Canada's economic growth accelerated this year.

Chances of another rate hike in October edged lower, to 38 per cent from 42 per cent before the data, the overnight index swaps market indicated.

At 9:23 a.m. ET, the Canadian dollar was trading at $1.2310 to the greenback, or 81.23 U.S. cents, up 0.1 per cent.

The currency traded in a range of $1.2255 to $1.2334.

Modest gains for the loonie came as the U.S. dollar buckled against the yen amid simmering tensions on the Korean peninsula.

The price of oil, one of Canada's major exports, dipped as investors waited to see whether major producers meeting in Vienna would back an extension to output cuts beyond March.

U.S. crude was down 0.26 per cent at US$50.42 a barrel.

Canadian government bond prices were higher across the yield curve in sympathy with U.S. Treasuries. The two-year gained 3.5 cents to yield 1.574 per cent, and the 10-year climbed 21 cents to yield 2.096 per cent.

The gap between Canada's two-year yield and its U.S. equivalent narrowed by 1 basis point to 13.9 basis points.