Canada's merchandise trade deficit narrowed more than expected in July, when the gap was C$987 million, down from C$4.9 billion the previous month. Imports dropped 5.4 percent, the largest decrease since January 2022. Real imports fell 4.3 percent. Exports were up 0.7 percent for a 0.2 percent decline in volumes.

As Statistics Canada had mentioned in last month's report, a strike at British Columbia (BC) marine port terminals that disrupted activity for 13 days starting on July 1 impacted trade activity. Imports cleared in these ports dropped 18.5 percent (unadjusted, customs-basis imports). Exports leaving the ports contracted 23.0 percent to their lowest level since February 2020. Freight backlog means the impact could be felt over a few months, the report said.

On the import front, 9 of 11 categories were down in July, with precious metals still playing a key role. Imports of metal and non-metallic mineral products were down 25.3 percent, led by gold, silver and platinum and their alloys. Gold alone explained more than a third of the decline in imports. But disruptions at the BC ports were behind most of the poor import performance, including for consumer goods.

Gold and strike activity also weighed on exports. Exports of metal and non-metallic mineral products fell 8.6 percent, with unwrought gold, silver, and platinum group metals, and their alloys down 16.8 percent. Exports of aircraft and other transportation equipment (up 23.4 percent) and canola brought positive offsets.

Regionally, the surplus with the United States rose to C$7.4 billion from C$6.4 billion.

Canada's merchandise trade deficit with countries other than the United States narrowed to $8.4 billion in July from a record C$11.4 billion in June.

July's trade balance is seen in deficit of C$4.3 versus June's deficit of C$3.732 billion and May's deficit of C$2.68 billion.

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.