Canada’s trade deficit widened in January, missing consensus estimates

Canada's trade deficit in January surprisingly widened as exports fell more than imports, led by a meaningful drop in shipments of motor vehicles and parts, data showed on Thursday.

Statistics Canada said the country posted a deficit of C$3.65 billion ($2.69 billion) in January, almost three times more than the deficit of C$1.3 billion observed in December.

Analysts polled by Reuters had forecast a C$900 million deficit for the month.

Canada's international merchandise trade is heavily skewed to the U.S., its biggest trading partner. Both exports to and imports from the U.S. dropped in January, with the U.S. accounting for 68% of Canada's total exports.

Total exports fell by 4.7% in January, the largest drop since April last year. Exports declined in six out of 11 categories, StatsCan said.

In volume terms, exports declined 5.8%, it said.

Exports of motor vehicles and parts slid to their lowest since September 2021, posting a massive 21.2% drop. This was mainly due to lower motor vehicle production in Canada following prolonged seasonal production stoppages, the statistics agency said.

Exports of metal and non-metallic mineral products fell by 8% in January, primarily led by lower exports of unwrought gold to the United Kingdom.

Higher energy exports, which rose by 4.1%, helped offset some of the decline. This is Canada's biggest export category by value, and contributes close to a quarter of its total exports.

Economists have said Canada's international trade could benefit in the coming months from higher crude oil prices owing to the war in the Middle East.

Exports to the U.S. fell 3.8% and imports dropped by 3.4%, shrinking Canada's trade surplus with its neighbor to C$5.4 billion in January, below the C$5.7 billion seen in the prior month.

Exports to countries other than the U.S. dropped 6.5% after reaching a record high in December, mainly due to the drop in unwrought gold exports to the UK.

Imports from countries other than the U.S. increased 2.1% in January, due in part to higher imports of industrial machinery from China, StatsCan said.

Canada's total imports dropped by 1.1% in January, with decreases in seven out of 11 product categories.

The Canadian dollar firmed broadly after the trade data and was trading up 0.07% to 1.3600 to the U.S. dollar, or 73.53 U.S. cents. Yields on the two-year government bonds were down 0.5 basis points at 2.580%.