CA: Merchandise Trade

Thu Oct 05 07:30:00 CDT 2017

Consensus Actual Previous Revised
Level C$-2.8B C$-3.4B C$-3.0B C$-3.0B
Imports-M/M 0% -6.0% -6.1%
Imports-Y/Y 3.0% 4.0% 3.7%
Exports-M/M -1.0% -4.9% -5.1%
Exports-Y/Y -0.2% 2.2% 2.0%

August trade gap widened to C$3.4 billion from a revised C$3.0 billion in July. Expectations were for the gap to narrow to C$2.8 billion. Exports dropped 1.0 percent on the month even though 6 of 11 categories were higher. On the year, exports edged down 0.2 percent. Imports, on the other hand, were flat as a result of divergent trends.

In volume terms alone, exports dropped 1.9 percent, following declines of 1.2 percent in July and 2.2 percent in June. This is the first time since 2011 that real exports declined for three consecutive months. With real imports edging up just 0.2 percent, the real trade deficit widened to C$1.3 billion from C$0.4 billion.

The surplus with the U.S. narrowed to C$2.3 billion in August from C$3.2 billion in July. The trade deficit with non-US countries declined to C$5.7 billion from C$6.2 billion.

Today's data could feed the Bank of Canada's worries about the strength of the Canadian dollar -- but it is unclear just how much the weakening trade picture is attributable to the currency.

The merchandise trade balance measures the difference between imports and exports of goods. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade and can offer a guide to an economy's competitiveness. Nominal data are supplied with regards to principal trading partners and product classification.

Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect currency values in foreign exchange markets. This is particularly true for Canada which relies on exports and particularly those to the U.S. for growth. It should be noted that this report focuses solely on goods trade - it leaves services trade for the quarterly national accounts and balance of payments reports.

Imports indicate demand for foreign goods while exports show the demand for Canadian goods in the U.S. and elsewhere. The Canadian dollar is particularly sensitive to changes in its trade balance with the U.S. For the most part, Canada's trade balance is in surplus thanks to its exports to the U.S. Both the nominal export and import values are split into volume (real) and price components. This permits trade data to be analyzed for both changes in trade patterns as well as changing prices. This has been particularly important of late given energy price volatility and the impact on Canada's merchandise shipments. A word of caution -- the data are subject to large monthly revisions. Therefore, it can be misleading to form opinions on the basis of one month's data.

The bond market is sensitive to the risk of importing inflation. This report gives a breakdown of trade with major countries so it can be instructive for investors who are interested in diversifying globally. For example, a trend of accelerating exports to a particular country might signal economic strength and investment opportunities in that country.