By Frank Pingue
TORONTO, March 14 (Reuters) - The Canadian dollar fell more than a cent versus the U.S. dollar on Friday in one swift move after a bout of profit taking was exaggerated in thin market conditions ahead of the weekend.
Domestic bond prices, with no key Canadian economic data to consider, followed the bigger U.S. Treasury market up across the curve as U.S. data missed expectations.
At 9:20 a.m. (1320 GMT), the Canadian currency was at US$1.0053, valuing a U.S. dollar at 99.47 Canadian cents, down from US$1.0146, valuing a U.S. dollar at 98.56 Canadian cents, at Thursday's session close.
The Canadian dollar was a touch higher during the overnight session until a quick early-morning selloff knocked it down to US$1.0032, or 99.68 Canadian cents per U.S. dollar, as some investors saw a chance to pocket some gains.
Given the backdrop of lofty prices for oil and gold, two of Canada's key exports, and expectations for stock markets to open higher, the currency's fall was pegged to profit-taking after hitting its highest level in nearly a week on Thursday.
"We heard some European names that were selling the Canadian dollar and it doesn't sound like it was in huge volumes, but in illiquid markets it is like pushing on an open door," said David Watt, senior currency strategist at RBC Capital Markets.
"But until we break out of the recent range you can't call a directional move one way or the other, we are just bouncing between support and resistance so that just tells me that the currency lacks overall direction."
The latest Canadian data showed labor productivity dropped 0.8 percent in the fourth quarter from the previous quarter, its biggest quarterly decline since 1995.
The data followed other economic reports earlier this week that showed Canada's trade surplus and new housing prices rose more than expected, while capacity use slid to an 11-year low in the fourth quarter.
The Canadian currency has been bounced around in a range of US$1.0016 and US$1.0267 for the past two weeks given a mix of strong domestic data and commodity prices as well as nagging concerns about what impact a U.S. economic slowdown will have on Canada.
"It lacks overall direction and until we get a break one way or another I am not going to start thinking that we are in either a Canadian dollar bullish or Canadian dollar bearish environment," said Watt.
Canadian bond prices added to recent gains given the weak domestic data and a U.S. report that showed February headline consumer price inflation was unexpectedly flat.
The two reports kept investors interested in the security offered by government debt.
"You've got the incredibly soft U.S. inflation report ... so you are getting the classic response which is bonds rallying in combination with a flattening of the curve," said Eric Lascelles, chief economics and rates strategist at TD Securities.
The overnight Canadian Libor rate LIBOR01 was 3.5816 percent, down from 3.6000 percent on Thursday.
Thursday's CORRA rate CORRA= was 3.4798 percent, down from 3.4836 on Wednesday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.
The two-year bond was up 2 Canadian cents at C$102.85 to yield 2.525 percent. The 10-year bond rose 8 Canadian cents to C$103.88 to yield 3.503 percent.
The yield spread between the two- and 10-year bond was 97.8 basis points, up from 97.3 points at the previous close.
The 30-year bond rose 36 Canadian cents to C$116.91 to yield 4.011 percent. In the United States, the 30-year Treasury yielded 4.378 percent.
The three-month when-issued T-bill yielded 2.30 percent, down from 3.30 percent at the previous close. (Editing by Renato Andrade)