Canada's goods balance swung into a C$2.277 billion deficit in March, the largest since June 2023, from a C$476 million surplus in February, while forecasters in an Econoday survey had anticipated a C$1.1 billion surplus.

Exports contracted 5.3 percent on the month, erasing the previous month's gains on widespread declines across 9 of 11 sectors, driven by unwrought gold. Excluding the latter category, exports were down 3.2 percent. Total real exports fell 4.7 percent from February. Among other key negative contributors, energy was down 4.9 percent and motor vehicles contracted 6.3 percent.

Imports decreased 1.2 percent in March after increasing 5.2 percent in February, with declines in 7 of 11 sectors. The weakness was entirely volume related as volumes fell 1.2 percent. Dragging imports down were an 8.1 percent drop in electronic and electrical equipment and parts and a 29.2 percent plunge in metal ores and non-metallic minerals to the lowest level since September 2021. A 10.8 percent advance in metal and non-metallic mineral products brought some offset.

Regionally, the surplus with the US narrowed to C$6.5 billion from C$8.5 billion, amid declining trade activity between both countries, as imports fell 1.1 percent and exports 5.0 percent. Meanwhile, Canada's trade deficit with countries other than the US widened to C$8.8 billion from C$8.0 billion.

In services, exports contracted 2.0 percent on the month and imports were down 1.4 percent. The combined deficit in goods and services widened to C$3.3 billion from C$0.4 billion.

March's trade balance is seen in surplus of C$1.1 billion versus February's higher-than-expected surplus of C$1.4 billion that showed wide gains for exports.

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.