Canada's balance of international payments was slightly weaker than economists expected, with the deficit in the second quarter increasing to 11 billion Canadian dollars from 8.5 billion in the first three months of 2010. Tuesday's data shows consumer spending on goods and service and house construction grew at a slower rate than in the first quarter.

"The weakness in global demand does not bode well for the improvement in net exports that was necessary to offset the slowdown in consumer spending expected in the near-term, as highly indebted Canadian households take a breather after driving most of the economic recovery," said Rangasamy.

Canada's trade position eroded in the second quarter, and reflects economic weakness in Europe, which has been thrown for a loop by its sovereign debt crisis, and, most important, in the United States, the country's largest trading partner.

The monthly trade reports from Statistics Canada suggest imports grew 20.1 percent on an annualized quarterly basis in the April-to-June period, contrasting with a modest 2.8 percent gain for exports.

The GDP report "reinforces the view that the Bank of Canada will stay on hold at its meeting in September," Sebastian Galy, a currency strategist in New York at BNP Paribas, wrote in a note to media and clients Tuesday.

He said the U.S. dollar, compared to its Canadian counterpart, is "moving higher as part of a wave of risk aversion and as odds of a September (Canadian interest rate) hike are priced out." Enditem (1 U.S. dollar = 1.06190029 Canadian dollars )

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