As imports rose while exports weakened, Canada's goods surplus narrowed more than expected in November, to C$1.6 billion and below Econoday's consensus forecast for C$2.3 billion. October's surplus was revised up to C$3.2 billion from C$3.0 billion.

Imports rebounded 1.9 percent after dropping 2.9 percent in October, with gains across 8 of 11 categories led by stronger activity as indicated by a 1.6 percent increase in volumes. An 11.6 percent gain in energy led the advance. Elsewhere, imports of electronic and electrical equipment and parts rose 4.7 percent and industrial machinery and equipment rose 4.9 percent. On the downside, consumer goods fell 2.2 percent, consistent with weakening in household spending.

Exports, by contrast, contracted 0.6 percent in November, the first decline since June 2023, following an upwardly revised 0.3 percent increase in October. Volumes edged down 0.1 percent. Declines were concentrated in four categories, led by a 6.5 percent decrease in metal and non-metallic mineral products, as well as a 16.8 percent drop in aircraft and other transportation equipment and parts. Excluding these two categories, exports were actually up 1.0 percent as seven categories posted gains on the month.

Regionally, trade activity with the US increased, with exports up 0.4 percent and imports up 1.7 percent. The import strength led to a smaller surplus of C$11.7 billion from C$12.1 billion. Exports to countries other than the US fell 4.2 percent and imports rose 2.3 percent, leading to a widening of the deficit to C$10.1 billion from C$9.0 billion.

In services, exports rose 1.0 percent and imports edged down 0.1 percent. The combined trade and services surplus narrowed to C$0.6 billion in November from C$2.0 billion in October.

November's trade balance is seen in C$2.3 billion surplus versus October's surplus of C$3.0 billion that compared with a C$1.1 billion surplus in September.

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.