Following a month of disruptions in port operations in British Columbia, trade activity increased in August, leading to an unexpected surplus of C$718 million after a deficit of C$437 million in July, less than half the size of the initial estimate. A 5.7 percent month-to-month gain in exports outpaced a 3.8 percent advance in imports.

Price effects played a noticeable role in August, as export volumes were up 3.0 percent and import volumes just 1.2 percent.

Looking at sector breakdowns within exports, metal and energy led the increase. Metal and non-metallic mineral products rose 29.1 percent to a record C$8.5 billion, with the largest contributions coming from unwrought gold, silver, and platinum group metals (up 89.5 percent). Gold asset transfers in the banking sector were behind higher exports of the precious metal to the US over the month. Metal ores and non-metallic minerals were up 14.8 percent, and energy products 14.6 percent. The resumption of port activity in British Columbia supported exports of coal, potash and lumber.

Gains in imports were widespread across 9 of 11 categories. Of note, industrial machinery equipment and parts increased 7.5 percent, an encouraging sign for business investment activity. Elsewhere, basic and industrial chemical, plastic and rubber products increased 11.2 percent, consumer goods 2.2 percent and electronical equipment and parts 3.7 percent. Energy was up 10.4 percent.

Regionally, the surplus with the United States expanded to C$10.4 billion, the largest since June 2022. Canada's merchandise trade deficit with countries other than the US widened to $9.7 billion from 8.6 billion.

August's trade balance is seen in deficit at C$1.3 billion versus July's deficit of C$0.987 billion and June's deficit of C$4.917 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.