(Adds strategist quotes and details throughout; updates prices) * Canadian dollar falls 0.4 percent against the greenback * Canadian retail sales decline 0.3 percent in January * Price of U.S. oil falls 1.6 percent * Canada's 10-year yield hits a 21-month low at 1.584 percent By Fergal Smith TORONTO, March 22 (Reuters) - The Canadian dollar weakened to a near two-week low against the greenback on Friday as moves in the bond market and domestic retail sales data pointed to a slowdown in Canada's economy that could forestall further Bank of Canada interest rate hikes. The gap between Canada's 10-year yield and the yield on the 3-month T-bill turned negative for the first time since August 2007, at about -5 basis points. The U.S. yield curve also inverted. An inverted yield curve threatens productivity and credit growth as it makes it less appealing to invest in long-term projects. It is seen by some investors as a harbinger of recession. "The bond market is flashing major warning signals about the U.S. and Canadian economies," said Adam Button, chief currency analyst at ForexLive. "There are an abundance of worries in the Canadian outlook and I would be surprised if the Canadian dollar didn't fall further from here." Domestic data showed that Canadian retail sales fell 0.3 percent in January from December, the third consecutive decline, and that Canada's annual inflation rate edged up to 1.5 percent in February but remained below the Bank of Canada's 2.0 percent target for the second successive month. "It is all consistent with a slower growth trajectory in Canada," said Andrew Kelvin, senior rates strategist at TD Securities. "They (the Bank of Canada) are on hold for a while." The Bank of Canada has hiked interest rates by 125 basis points since July 2017 but said this month there is "increased uncertainty about the timing of future rate increases." Money markets see about a 60 percent chance of a cut this year. At 4:26 p.m. (2026 GMT), the Canadian dollar was trading 0.4 percent lower at 1.3417 to the greenback, or 74.53 U.S. cents. The currency, which touched its weakest since March 11 at 1.3429, was down 0.6 percent for the week. The decline for the loonie came as weak factory data from the United States and Europe fueled fears of a global economic downturn, pressuring stocks on Wall Street and the price of oil, one of Canada's major exports. U.S. crude oil futures settled 1.6 percent lower at $59.17 a barrel. Canadian government bond prices were higher across the yield curve, with the 10-year rising 57 Canadian cents to yield 1.601 percent. The 10-year yield touched its lowest intraday since June 2017 at 1.584 percent. (Reporting by Fergal Smith Editing by Susan Thomas and James Dalgleish)
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