Trade deficit shrinks to $4.9B in July as energy, vehicle exports 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 $4.94 billion, smaller than last month's $5.98 billion, but much higher than the same period last year, according to Statistics Canada's data.

Overall exports rose by 0.9 per cent to $61.86 billion in July while imports slowed 0.7 per cent to $66.8 billion, the agency said.

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

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

Trump's threats and subsequent tariffs on imports from Canada have 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 per cent of Canada's total goods exports last year, have been on an upswing for the last three months on a monthly basis.

Canada exported more crude oil and passenger cars to the U.S. in July, pushing its exports up five per cent. But on a year-on-year basis, exports south of the border were still down more than10 per cent.

However, imports from the U.S. continued to fall and dropped 2.2 per cent in July.

WATCH | Is the Canada-U.S. free trade dead?:

North American free trade is teetering on the edge of uncertainty as U.S. President Donald Trump's tariffs continue to complicate how goods come and go. Andrew Chang explores signs that free trade — as we've come to know it — is on its way out, and challenges that may lie ahead in renegotiating the Canada-U.S.-Mexico Agreement (CUSMA). Images provided by Getty Images, The Canadian Press and Reuters.

Exports of energy products posted an increase in July of 4.2 per cent and exports of motor vehicles and parts increased 6.6 per cent, 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 per cent tariff from the U.S., dropped more than 30 per cent in July. Steel exports, although marginally down in July, were down more than 25 per cent year-to-date.

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

The Canadian dollar was trading down 0.21 per cent (worth 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 per cent.

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