TORONTO (Reuters) - The Canadian dollar was down versus the U.S. dollar on Monday as an upbeat piece of domestic data could not sway sentiment on the economy in a muted session ahead of the Canada Day holiday on Tuesday.
Domestic bond prices were lower across the curve due to a combination of better-than-expected Canadian gross domestic product data and ongoing inflation worries.
At 9:35 a.m., the Canadian unit was at C$1.0137 to the U.S. dollar, or 98.65 U.S. cents, down from C$1.0106 to the U.S. dollar, or 98.95 U.S. cents, at Friday's close.
Canada's gross domestic product was 0.4 percent in April, which was a touch above expectations and also ended 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.
"It's all a bounce back story," said Eric Lascelles, chief economics and rates strategist at TD Securities.
"In my mind going forward we are still going to have to look for a fairly soft general trend and the Bank of Canada probably persuaded to remain on hold by the likes of these sorts of numbers."
The commodity-linked Canadian dollar had rallied during the overnight session to C$1.0062 to the U.S. dollar, or 99.38 U.S. cents, due in part to higher oil prices.
But the currency steadily declined and hit a session low of C$1.0160 to the U.S. dollar, or 98.43 U.S. cents, shortly after the sole piece of domestic data for the session was released.
With many market participants taking an extended weekend due to the holiday on Tuesday, the domestic currency was expected to be bounced around in illiquid markets all day.
Canadian bond prices were wedged lower as the latest data showed the domestic economy rebounded, but the slide did not draw too much concern given the slim crop of dealers.
The bond market is scheduled to close early, at 2:00 p.m., and will not reopen until Wednesday, and Lascelles said the reason behind its decline could be due to nagging concerns about inflation.
The overnight Canadian Libor rate was 3.3416 percent, up from 3.0383 percent on Thursday.
Friday's CORRA rate was 3.0004 percent, up from 2.9938 percent on Thursday. The Bank of Canada publishes the previous day's rate around 9 a.m. daily.
The two-year bond fell 11 Canadian cents to C$101.95 to yield 2.696 percent. The 10-year bond was down 11 Canadian cents at C$102.16 to yield 3.713 percent.
The yield spread between the two-year and 10-year bond was 50.0 basis points, down from 53.1 at the previous close.
The 30-year bond dropped 24 Canadian cents to C$115.61 for a yield of 4.076 percent. In the United States, the 30-year Treasury yielded 4.529 percent.
The three-month when-issued T-bill yielded 2.57 percent, unchanged from the previous close.
Reporting by Frank Pingue; Editing by Scott Anderson