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TORONTO (Reuters) - The Canadian dollar fell to a two-week low before recovering slightly on Monday, bogged down by profit-taking at the start of a holiday-shortened work week in Canada and the United States.
Domestic bond prices finished lower across the curve with nagging inflation concerns and a stronger-than-expected piece of Canadian data spoiling investor appetite for secure assets like government debt.
At 2:10 a.m., the Canadian unit was at C$1.0184 to the U.S. dollar, or 98.19 U.S. cents, down from C$1.0106 to the U.S. dollar, or 98.95 U.S. cents, at Friday's close.
The currency's decline was pegged to investors who booked profits on the last day of trading in the second quarter and ahead of the Canada Day holiday on Tuesday. Just before midday the currency fell to C$1.0215 to the U.S. dollar, or 97.89 U.S. cents, its lowest level since June 17.
"Just one of those signs when people are taking risk off the board ... they made some money on the Canadian dollar over the last little while and they are just booking it ahead of a holiday," said David Watt, senior currency strategist at RBC Capital Markets.
"Plus you've got enough sort of trip wires for risk over the next few days that people don't want to be sitting in a market that's closed or holding an asset when a market's closed and there's the potential to have things go against you."
The Canadian currency, which rose nearly 1 percent in the second quarter, traded in a wide range in an illiquid market as many market participants took an extended weekend due to the holiday on Tuesday.
Market conditions are expected to remain illiquid for the remainder of the week as U.S. financial markets will be closed Friday for Independence Day.
Data released early in the session showed Canada's gross domestic product was 0.4 percent in April, which was a touch above expectations and also put an end to two straight months of contractions.
But the data was not enough to offer a bid to the Canadian dollar since it was fueled by a rebound in manufacturing, made possible by a rebound in motor vehicle production after a sharp drop in the prior month.
Canadian bond prices were stuck lower all session after data showed the domestic economy rebounded, but the retreat did not draw too much concern given the slim crop of dealers.
"There was a bit of noise but fundamentally the fact is that inflationary worries have now returned to the forefront given those much higher energy prices," said Carlos Leitao, chief economist at Laurentian Bank of Canada in Montreal.
Oil prices rallied to a record high above $143 a barrel on Monday before easing back about $3.
The Canadian bond market will reopen on Wednesday.
The only piece of data still due out in Canada this week will be Friday's Ivey Purchasing Managers Index for June, which is prone to sharp moves since it is not seasonally adjusted.
Ivey data is expected to show purchasing activity in the Canadian economy rose in June but at a slightly slower pace than in the previous month.
The two-year bond fell 15 Canadian cents to C$100.93 to yield 3.246 percent. The 10-year bond dropped 34 Canadian cents to C$101.93 to yield 3.743 percent.
The yield spread between the two-year and 10-year bond was 49.7 basis points, down from 53.1 at the previous close.
The 30-year bond slipped 33 Canadian cents to C$115.53 for a yield of 4.080 percent. In the United States, the 30-year Treasury yielded 4.500 percent.
The three-month when-issued T-bill yielded 2.57 percent, unchanged from the previous close.