Canada's merchandise trade deficit in September narrowed to -C$1.3 billion from a revised C$1.5 billion in August (previously C$1.1 billion), compared to a -C$0.5 billion consensus in the Econoday survey of forecasters. Exports decreased 0.1 percent, after a 1.4 percent drop in August, while imports fell 0.4 percent - almost reversing a 0.5 percent increase in August.

This is the third straight drop in Canada goods exports, with Statscan reporting that lower prices were behind the decline in 'nominal' exports, but when adjusted for inflation, total exports rose 1.4 percent. In real terms, imports were"essentially unchanged."

Exports are down 2.8 percent compared to September 2023, while imports rose by just 0.2 percent.

On a quarterly basis, after a 0.3 percent increase in the second quarter, exports dropped 0.2 percent in the third quarter. The decline in exports of motor vehicles and parts (-3.8 percent) was the primary driver of the quarterly decrease.

Meanwhile, imports dipped by 0.1 percent in the third quarter. After a strong showing in the second quarter, a plunge in the imports of motor vehicles and parts (-6 percent) was the largest contributor to the decline.

As a result, Canada's quarterly merchandise trade deficit increased from -C$2.8 billion in the second quarter to -C$3.0 billion in the third quarter.

A weak showing for exports and rising imports have kept Canada's merchandise trade balance in deficit lately. A deficit of C$0.5 billion is the call for September after August's C$1.1 billion deficit.

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.