CA: Merchandise Trade

Tue Dec 05 07:30:00 CST 2017

Consensus Actual Previous Revised
Level C$-2.9B C$-1.5B C$-3.2B C$-3.4B
Imports-M/M -1.6% -0.3% 0.2%
Imports-Y/Y 0.9% -2.0% -2.3%
Exports-M/M 2.7% -0.3% -0.7%
Exports-Y/Y 0.7% 0.3% -0.7%

October merchandise trade deficit narrowed to C$1.5 billion from C$3.4 billion in September. Exports were up 2.7 percent on higher exports to the United States, while imports decreased 1.6 percent on lower imports of motor vehicles and parts.

Total exports increased 2.7 percent following four consecutive monthly declines. Prices were up 1.5 percent and volumes increased 1.2 percent. Advances were observed in 9 of 11 sections, led by basic and industrial chemical, plastic and rubber products. There were also notable gains in metal and non-metallic mineral product); farm, fishing and intermediate food products and energy products. On the year, total exports were up 0.8 percent.

Total imports were down 1.6 percent mainly due to a decrease in motor vehicles and parts. Other movements included a drop in metal ores and non-metallic minerals and an increase in aircraft and other transportation equipment and parts. Overall, import volumes decreased 3.9 percent while prices rose 2.4 percent. On the year, total imports rose 0.9 percent.

Exports to the United States rose 4.1 percent led by unwrought gold. Imports from the United States were down 0.6 percent partly on lower imports of zinc ores. As a result, Canada's trade surplus with the United States widened from C$2.0 billion in September to C$3.5 billion in October. The Canadian dollar lost 2.1 US cents on average relative to the US dollar from September to October.

Imports from countries other than the United States fell 3.3 on lower imports from Mexico (light trucks), Japan (gold bullion) and Saudi Arabia (crude oil). Exports to countries other than the United States were down 1.4 percent on lower exports to the United Kingdom and China (both unwrought gold). Partially offsetting these declines were higher exports to the Netherlands (metallurgical coal) and Switzerland (aircraft). As a result, Canada's trade deficit with countries other than the United States narrowed from C$5.4 billion in September to C$5.0 billion in October.

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.