Canadian Dollar Falls as Economy Unexpectedly Contracted in May

By Cordell Eddings

July 31 (Bloomberg) -- Canada's dollar fell after the economy unexpectedly shrank in May, as natural gas extraction and car production dropped.

The dollar fell 0.1 percent to C$1.025 per U.S. dollar at 8:48 a.m. in Toronto, from $1.0234 yesterday. One Canadian dollar buys 97.55 U.S. cents. The currency has dropped 2.6 percent so far this year versus its U.S. counterpart.

Gross domestic product fell 0.1 percent, the fourth decline in six months, to C$1.23 trillion ($1.2 trillion), Statistics Canada said today in Ottawa. Economists in a Bloomberg survey predicted a 0.2 percent gain, the median of 24 estimates.

``It may reinforce concerns about the economy and further cut the legs out from the Canadian dollar, stoking some feeling that the bank might be cut rates,'' said Doug Porter, deputy chief economist with BMO Capital Markets in Toronto, before the report.

The currency has traded near parity with its U.S. counterpart since September. It touched a 2008 low of C$1.0379 on Jan.22, and a high of 97.12 cents per U.S. dollar on Feb. 28.

The Canadian dollar will weaken to C$1.07 in the first quarter of 2009, according to the median estimate of 29 economists surveyed by Bloomberg News.

To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net