Canadian trade deficit remains unchanged in September, net trade to weigh on overall growth in Q3

Canadian trade deficit remained unchanged at CAD 3.2 billion in September as imports and exports both dropped 0.3 percent in the month. Export and import volumes, in real terms, dropped 0.2 percent. The decline in exports was mainly because of motor vehicles and parts, with a strike that started in mid-month, contributing to a 16 percent drop in exports of passenger cars and light trucks. Most other industries saw gain in the month, led by energy exports that rose 7.2 percent in the month.

The fall in imports was fairly broad based, but an 18.5 percent sharp rise in energy product imports and a 7 percent rise in metal ores and non-metallic minerals gave some offset. Canada’s trade surplus with the U.S. narrowed to CAD 2.2 billion in the month from CAD 2.7 billion, as exports dropped 1.2 percent and imports grew 0.4 percent. Meanwhile, the nation’s trade deficit with the remainder of the world narrowed to CAD 5.3 billion, with exports rising 2.4 percent and imports falling 1.4 percent.

This is the fourth straight month in which export volume dropped. For the third quarter as a whole, export volumes dropped 3.8 percent. With imports dropping a slight 0.2 percent in the same period, net trade is expected to be a drag on the overall growth in the third quarter, which is now tracking under 2 percent, and provides a subdued hand off for the fourth quarter, stated TD Economics in a research report.

The conditions are expected to stay supportive for exports to resume growth going forward, with a strong U.S. economy likely to keep demand for Canadian-made goods healthy and a Canadian dollar that has dropped to about 78 U.S. cents. The Bank of Canada, at this point, is unlikely to hike its key interest rate until early 2018, added TD Economics.

At 15:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was highly bullish at 118.298, while the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 136.387. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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