Canadian July Trade Deficit Narrows To C$3.0bn, Currency Gain Undermines Exports

The Canadian trade account recorded a deficit of C$3.04bn for July following a revised C$3.76bn shortfall for June. Consensus forecasts were for a deficit of around C$3.1bn for the month.

Total exports declined 4.9% for the month to C$44.1bn with declines in 9 of the 11 sub-sectors. The primary impact was from lower prices as the Canadian dollar strengthened sharply, although volumes also declined 1.1% on the month. There was still 2.2% year-on-year growth in exports.

There was a significant drop in motor-vehicle exports while the decline excluding energy amounted to 5.2%.

Energy imports declined 3.7% on the month, although there was still a 24.3% annual increase.

Imports fell 6.0% on the month to C$47.2bn with declines across all sectors. Price changes also had an important impact with a 3.8% drop due to the stronger Canadian currency.

Consumer goods imports declined 1.3% on the month, although there was a 5.4% annual increase.

There was a widening of the trade surplus with the US to C$2.9bn from C$1.8bn in June.

The Bank of Canada will remain sensitive to trade developments, especially with underlying concerns surrounding export trends over the past year. The decline in volumes will cause some additional concerns, although uncertainty will be the dominant influence, especially given the current NAFTA renegotiation talks. The central bank is certainly likely to be uneasy over the pace of currency appreciation.

Wednesday’s monetary statement will be watched closely for comments on the trade sector.

The Canadian dollar edged fractionally lower after the data with USD/CAD just above 1.2400, although moves were limited ahead of the bank rate decision.

Tim is a contributing author to He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.

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