April 29, 2011 / 1:56 PM / 9 years ago

CANADA FX DEBT-C$ falls after GDP, election uncertainty weighs

   * C$ falls to C$0.9542 to the U.S. dollar
 * February GDP shrinks unexpectedly
 * Markets eye rising NDP in election campaign
 (Updates with details, adds analyst comments)
 By Solarina Ho
 TORONTO, April 29 (Reuters) - The Canadian dollar retreated
against a broadly weaker U.S. currency on Friday, following
data that showed Canada's economy shrank unexpectedly and amid
uncertainty over next week's federal election.
 February GDP fell 0.2 percent as the manufacturing sector
gave back part of its January gains and wholesale trade fell
for the first time in five months. [ID:nN29223177]
 "To a certain extent, this was telegraphed earlier by the
shipments data, so this isn't too much of a surprise," said  
David Tulk, chief Canada macro strategist at TD Securities.
 "It doesn't take much away from what's going to be a strong
first quarter for the Canadian economy, so any weakness that we
see in the Canadian dollar as a result of this number should be
relatively short-lived."
 At 9:32 a.m. (1332 GMT), the Canadian dollar CAD=D4 stood
at C$0.9542 to the U.S. dollar, or $1.0480, down from
Thursday's North American finish at C$0.9510 to the U.S.
 Earlier in the session, the currency had strengthened to as
high as C$0.9483, or $1.0545 as the U.S. dollar stayed under
heavy pressure on expectations U.S. monetary policy will stay
loose. [MKTS/GLOB]
 Overseas trading was quiet with volumes crimped by a
holiday in Britain for the royal wedding.
 The Canadian dollar was also pressured by political
uncertainty heading into the May 2 election. The federal
election has created headwinds for the currency in recent days
as support for the left-leaning New Democrats unexpectedly
 Canada's ruling Conservative Party is still leading the
campaign but only by a few points, according to a poll released
on Friday. [ID:nN29143540]
 "The only thing I think is going to be market moving is the
election on Monday night. I think the NDP can play a spoiler
role in the Canadian dollar rally," said Firas Askari, head of
foreign exchange trading at BMO Capital Markets.
 "If they are the official opposition then I think people
will take some Canadian dollar bets off the table."
 Askari said he didn't expect the Canadian dollar to
meaningfully join in the U.S. dollar selloff -- and break
through C$0.9450 -- until the election is out of the way.
 Aside from Monday's elections, next Friday's employment
data is a key potential driver for the currency.
 Tulk said the fundamental sources of support for the
Canadian dollar and the downtrend in the U.S. dollar were still
firmly intact.
 Canadian money market and short-term bond yields fell
following the GDP data, though long-term yields quickly
 The two-year bond CA2YT=RR was up 2.5 Canadian cents to
yield 1.720 percent, while the 10-year bond CA10YT=RR added
13 Canadian cents to yield 3.215 percent.
 "We're looking at a little bit of a bit pick up, a little
bit of a rally following the release ... For the most part,
it's consistent with the momentum we've seen on both sides of
the border," said Tulk.
 (Additional reporting by Claire Sibonney; editing by Jeffrey

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