* 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. dollar.
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 surged.
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 rebounded.
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 Hodgson)