Canada's goods balance moved deeper into deficit with a C$1.927 billion shortfall in May after a revised $1.323 billion deficit in April. Forecasters in an Econoday survey looked for a deficit of C$1.6 billion.

Exports fell back 2.6 percent on the month to their lowest level since July 2023, with decreases across 8 of 11 sectors, after a revised gain of 2.1 percent in April. In volume terms, exports fell 1.7 percent in May from April.

The exports decline was driven by metal and non-metal mineral products which fell 7.0 percent in May after a big jump in April. The May fall was mostly due to lower exports of copper ores and concentrates. Exports of unwrought gold, silver and platinum group metals and alloys, a category dominated by unwrought gold, fell by 17.1 percent. This largely reflected a lower volume of exports to the UK. Another big downer for exports was energy products, down 2.4 percent in May, mostly due to lower oil prices.

For imports, a decrease of 1.6 percent in May followed an increase of 1.3 percent in April, with declines in 6 of 11 sectors. The biggest movers in imports were a 10 percent drop in imports of metal and non-metallic mineral products and a 4.4 percent decline in imports of motor vehicles and parts. Passenger cars and light trucks were down 7.1 percent. This mostly reflected lower imports from the U.S. due to production and shipment delays which have disrupted deliveries to Canadian dealerships.

May's trade balance is seen in deficit at C$1.6 billion versus April's deficit of C$1.047 billion and March's deficit of C$1.985 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.