The Canadian dollar strengthened on Monday against a broadly weaker U.S. dollar, which softened against key rivals as Tropical Storm Harvey flooded the country's fourth-largest city.

The Canadian dollar also shrugged off the latest NAFTA comments by U.S. President Donald Trump, who tweeted that Mexico and Canada were both being "very difficult" and again raised the possibility of scrapping the free trade agreement.

At 9:32 a.m. ET, the Canadian dollar was trading at $1.2453 to the greenback, or 80.30 U.S. cents, up 0.2 per cent.

The U.S. dollar, which slumped on Friday after U.S. Federal Reserve Chair Janet Yellen failed to mention monetary policy at a meeting of central bankers in Wyoming, extended its losses to 16-month lows against a basket of major currencies. The decline came amid concerns about how Tropical Storm Harvey might impact the country's economy. 

The Canadian dollar, which has strengthened more than 2.5 per cent in the last two weeks and was outperforming other major currencies, traded between $1.2445 and $1.2485, and was on track to test the recent high of $1.2414, or 80.55 U.S. cents.

The greenback's weakness this year, along with a string of robust domestic economic data, has helped propel the Canadian dollar up 7.5 per cent so far this year.

Investors' focus is turning next to second-quarter Canadian growth data, due on Thursday, for further direction.

Canadian government bond prices were lower across the maturity curve, with the two-year price down 1.5 Cents to yield 1.276 per cent and the benchmark 10-year falling 13 Cents to yield 1.89 per cent.

The Canada-U.S. two-year bond spread was -6.2 basis points, while the 10-year spread was -28.6 basis points.