Canada's dollar fell against its U.S. counterpart after thenation's gross domestic product unexpectedly shrank in February,weakening the argument for higher borrowing costs.

The currency extended losses after a report showed the economywas hurt by mining shutdowns and the first drop in manufacturing insix months. The Canadian dollar advanced against all of its majorcounterparts except the yen last week on speculation the Bank ofCanada will become the first among Group of Seven peers to raiseborrowing costs.

“The reaction is the right one, given how much we'd priced in,in terms of rate hikes,” said Adam Cole, global head offoreign-exchange strategy in London at Royal Bank of Canada's RBCCapital Markets unit, in a telephone interview. “Even after thecorrection today, we're probably still vulnerable to downside datasurprises.”

Canada's currency, nicknamed the loonie, declined 0.5 percent to98.55 cents per U.S. dollar at 8:45 a.m. in Toronto. It touched 98cents on April 27, the strongest since September. One Canadiandollar buys $1.0147.

Economic Output fell 0.2 percent to an annualized C$1.28trillion ($1.30 trillion) after a January gain of 0.1 percent,Statistics Canada said today in Ottawa. Economists surveyed byBloomberg News had forecast a 0.2 percent increase, according tothe median of 24 responses.

“The Canadian GDP figure was a little bit disappointing and isweighing on the Canadian dollar,” said Nick Bennenbroek, head ofcurrency strategy at Wells Fargo & Co. in New York.

The world's 10th largest economy will be challenged by the“persistent strength” of the Canadian dollar and slow growth in theU.S. and Europe, central bank Governor Mark Carney said in April 27remarks in Ottawa. Carney is relying on consumption and housing tocontribute two-thirds of the country's projected 2.4 percenteconomic growth this year.

The loonie has appreciated 1.3 percent this month versus thegreenback in the fourth-best performance among its 16 most-tradedpeers, trailing the yen and Singapore dollar. The Canadian dollaris up 3.6 percent this year.

Bloomberg News

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