Canada’s Dec trade balance in surplus territory, exports to gain momentum in months ahead

Canada’s trade balance stayed in the surplus territory for the second straight month in December; however, the surplus narrowed a bit in the month. It contracted to CAD 923 million from November’s upwardly revised CAD 1 billion. Meanwhile, exports grew 0.8 percent, whereas imports gained 1 percent in December. In real terms, exports fell 1.4 percent, while imports rose 0.4 percent.

Energy products rose 16 percent, reaching the highest level in two years due to higher prices, driving the rise in overall exports. Declines in motor vehicles and parts, non-metallic mineral products and metal ores provided some offset. This gave back some of the huge gains seen in November.

Higher imports were supported by a 22 percent rise in the highly-volatile aircraft and other transportation equipment, metal and non-metallic mineral products, industry machinery. In the meantime, energy products’ imports dropped 12 percent sequentially.

Canada’s trade surplus with the U.S. contracted to CAD 4.4 billion in December as the increase in imports surpassed the rise in exports. Canada’s trade deficit with the remainder of the world contracted to CAD 3.5 billion as exports rose 2.6 percent, while imports rose modestly by 0.5 percent in the month.

In spite of the decline in the volumes of export in December, net trade would still add to the Canadian economic growth in the fourth quarter that is expected to come in a bit above 2 percent, stated TD Economics. Exports are likely to gain some momentum going forward, with U.S. demand expected to stay healthy and the Canadian dollar unlikely to move much from its recent mid-70 U.S. cent range.

However, the overall trade outlook has been clouded due to NAFTA renegotiations being a main priority for President Trump.

“But, while the risks are certainly tilted to the downside, it will likely take some time before any potential measures are put into action”, added TD Economics.

At 5:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was neutral at -46.7239, while the FxWirePro's Hourly Strength Index of US Dollar was bullish at 89.8407. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex