Canada’s trade deficit in July narrows as exports to the US rise

Canada's trade deficit narrowed in July as overall exports rose, especially driven by outbound shipments of crude oil and passenger cars to its biggest trading partner the United States, Statistics Canada said on Thursday.

Its merchandise trade deficit, or deficit from trading in goods, in July was at C$4.94 billion ($3.57 billion), smaller than last month's C$5.98 billion, but much higher than the same period last year, according to Statistics Canada's data.

Analysts polled by Reuters had forecast the trade deficit for July at C$4.75 billion.

This was the sixth consecutive trade deficit since the U.S. President Donald Trump imposed tariffs on Canada, but it has been improving from an all-time record deficit of C$7.6 billion observed in April.

Trump's threats and subsequent tariffs on imports from Canada has forced many businesses to alter their supply chains and seek markets elsewhere. This has disturbed the trade balance between the two countries pushing Canada into a trade deficit.

But exports to the U.S., which was the destination for 76% of Canada's total goods exports last year, have been on an upswing for the last three months on a monthly basis.

Canada's exported more crude oil and passenger cars to the U.S. in July, pushing its exports up 5%. But on a year-on-year basis, exports south of the border were still down over 10%.

However, imports from the U.S. continued to fall and dropped 2.2% in July, taking its trade surplus with the U.S. by over 80% to C$6.7 billion in July, its highest since March.

The Canadian dollar was trading down 0.21% to 1.3823 to the U.S. dollar, or 72.34 U.S. cents, after the trade data was released. Bond yields on the government's two-year bonds improved and were down 0.1 basis point at 2.61%.

The recent GDP data which showed that the economy contracted by 1.6% has led money markets to bet that a rate cut in September is coming. Markets are now betting on an almost 70% chance of a rate cut on Sept. 17.

Overall exports rose by 0.9% to C$61.86 billion in July while imports slowed 0.7% to C$66.80 billion, StatsCan said.

Exports of energy products posted the biggest increase in July of 4.2% and exports of motor vehicle sand parts increased 6.6%, it said, adding that lower exports of metal and non-metallic mineral products partially offset the overall increase in exports in July.

Exports of aluminum, which has a 50% tariff from the U.S., dropped over 30% in July. Steel exports, although marginally down in July, were down over 25% year-to-date.

Exports to countries other than the United States were down 8.6% in July, a second consecutive monthly decline and imports from countries excluding the U.S. increased 1.3%.