The falling loonie has had many analysts predicting increased Canadian exports for months; while this hasn’t materialized at the anticipated rate, the country has seen exports strengthen for two months in a row.
A jump in exports in July has led to Canada’s trade deficit narrowing to $593 million, Statistics Canada announced September 3, down from a revised figure of $811 million in June.
The month saw Canada’s exports grow 2.3% to almost $45.5 billion. Excluding energy products, this jumps to 4.0%. Both prices and volumes, up 1.3% and 1.0%, respectively, increased during the month. Total imports increased 1.7% to $$46 billion.
“There’s no two ways about it: this is a solid report,” said Benjamin Reitzes, senior economist and vice-president, economic research at BMO Capital Markets in a note to investors.
“It looks like better U.S. growth and the weaker Canadian dollar might finally be providing a boost to trade.”
Reitzes said the economy looks on track to meet – or even beat – BMO’s call for 2.8% growth in 2015’s third quarter.
Sales to the United States grew 2.1%, reaching a total dollar volume of $34.7 billion for the month. Excluding exports to the U.S., Canada saw an overall increase of 2.9% to $10.7 billion. The biggest gain was found in an 11.7% jump in exports to China.
Analysts have been forecasting a jump in exports for at least the past year as the Canadian dollar has weakened, but this has taken some time to happen.
TD Economics wrote in a note to investors that there is evidence the “largest impact of the depreciation [of the Canadian dollar] has yet to be seen,” and this is partly because Canada is not the only country to see its currency devalued against the U.S. dollar.
“The depreciation of the Canadian dollar relative to the U.S. dollar over the past year has not been an exclusively Canadian story,” TD said.
“The greenback was appreciated widely against global currencies, resulting in a less significant boost to Canadian competitiveness. At the same time, it appears that exchange rates have become a less important driver of exports.”
As Canada has lost market share south of the border, China and Mexico have quickly taken its place.
“However, in U.S. dollar terms, the prices of Canadian goods have become much more competitive in the most recent period,” TD said.
The Bank of Canada is scheduled to make its next key interest rate announcement September 9, and Reitzes said a rate change is looking less likely.
“Assuming markets don’t totally melt down over the next week, it looks like the Bank of Canada will very likely hold policy rates steady at next week’s meeting,” he said.
The Canadian dollar gained six-tenths of a percent on the morning’s news, settling at 75.35 cents U.S. as of press time.
