Statistics Canada reported that Canada had a trade deficit for the seventh straight month in September. Trade activity has stalled in recent months, due in part to relatively soft domestic and foreign demand. While several factors impact trade activity, the strength or weakness of the Canadian dollar is a significant one. Trade is an important component of Canada’s economy, which also garners the attention of the Bank of Canada (BoC) as it considers its outlook for the Canadian economy.

• Exports from Canada fell by 0.1% in September over the previous month to $63.9 billion. This marked the fourth straight drop in Canadian exports amid waning foreign demand. Foreign spending on Canadian manufactured goods has been soft, which has weighed on Canada’s manufacturing sector.
• Imports dropped by 0.4% to $65.2 billion, marking its second consecutive decline. Purchases for metal products drove September’s decline. With the depreciation of the Canadian dollar over the past month, import activity could be hindered by relatively higher prices.
• Canada’s trade deficit narrowed from $1.47 billion to $1.26 billion over the month of September. This was Canada’s seventh straight deficit. And with the threat of increased trade protectionism measures, Canada’s trade activity could be negatively impacted.
• The Canadian dollar has been under pressure since September. This has come in part due to expectations the BoC will continue to aggressively lower interest rates and remain below that of the US Federal Reserve Board, which could take a more gradual approach.

Lower trade activity could weigh on Canada’s overall economic growth. Recent data shows that Canada’s economy is struggling for traction, likely growing by only 1.0%, annualized, in the third quarter. According to the BoC’s Summary of Deliberations from its last meeting, this slowdown in economic activity could contribute to more rate cuts at upcoming meetings.

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