Canada's trade surplus surged to C$4.0 billion in January, its highest since May 2022, as exporters (and importers too, by the way) rushed to front-run expected trade tariffs. That topped the expected C$1.2 billion surplus.

Exports zoomed up by 5.5 percent on the month in January to reach a record high of $74.5 billion after rising 6.0 percent in December. Much of this was autos and parts, which rose by 12.5 percent in January from December. Passenger cars and light trucks were up 17.1 percent in January to their highest level since May 2019. Exports of these vehicles were constrained in 2024 because of lower output.

Imports gained by 2.3 percent on the month in January after a strong 2.6 percent increase in December. The biggest movers in January were imports of aircraft and other transportation equipment and parts, up a whopping 23.6 percent. Other big contributors were electronic and electrical equipment, up 5.8 percent, and energy products, up 8.5 percent on the month in January.

Exports to the US rose 7.5 percent in January on the month and were up by 22.4 percent on year. Imports from the US rose 4.7 percent on the month and 11.1 percent on year.

The trade balance is expected to show a surplus of C$1.2 billion for January. US trade figures showed significant front-running of imports in January ahead of expected US tariffs. Will Canadian export figures reflect this? These trade figures may soon get a lot more interesting.

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.