Canadian trade data was positive today, showing a surplus that was nearly double expectations and is a further confirmation that Canada's trade sector is getting back its footing following the global recession.
From the Release: Canada's merchandise exports grew 2.8% in February, on the strength of industrial goods and materials, outpacing a 0.9% increase in imports. As a result, Canada's trade surplus with the world widened to $1.4 billion in February from $754 million in January.
Exports increased to $34.0 billion in February from $33.1 billion in January, as prices and volumes each grew 1.4%. This represented the fifth increase in export volumes and prices in six months. While most export sectors experienced gains in February, industrial goods and materials accounted for over half the growth in exports.
Canada Trade Picture Returning to Normal?
February's data shows a continued trend of improvement in exports since they bottomed out in the second quarter of 2009 at around C$28 billion. Now, exports are back to the C$34 billion level, which is close to the pace they were in the aftermath of the 2008 crash.
In the right-hand chart we see that Canada has had 5 straight months of surpluses and the pace of growth is on an upward trend. That means trade has begun to make a positive contribution to GDP. Prior to the global recession Canada was used to running a positive trade balance and it's only now that the trade sector is emerging from the contraction in global trade.
Growth Spurred by Industrial Goods and Materials and Autos
Half of the growth in exports in February came from industrial goods and materials which grew 7.2% to C$7.9 billion in February. That followed a 6.2% increase in January and shows that as the global economy recovers demand for these goods is picking up. Exports of automotive products rose 5.0% to $4.5 billion whole exports of energy products grew 0.8% to $8.7 billion, as prices rose 1.8%.
Oil Key to Future Surpluses
Though energy products grew slower than the other export sectors in February, oil will play a key role in returning Canada to monthly trade surpluses. Oil prices have returned to the $86 a barrel level, the highest since October of 2008 and that lines up nicely with our chart on rise in exports.
It also matches up nicely with the move in favor of the Canadian Dollar in the USD/CAD pair that we have seen over the same time-span.
Canadian Dollar Climbs as Oil Prices Rally, USD/CAD Tests Parity
Overall, if trade data continues to improve it is a very strong fundamental sign for the Canadian economy and would give the central bank more evidence that raising rates is the thing to do which should support the Canadian Dollar. The pair has currently run up against the parity level which is acting as a sticky level of support and today's action proved to be rather volatile. Those that traded strictly on the news by selling the USD/CAD would have seen a strong whipsaw.
Canadian Dollar Post-Report Gains Cut Short by Risk Aversion
In a look at a 10-minute chart we see that following the Canadian trade news, and a weaker US trade report, the USD/CAD moved in favor of the Canadian Dollar. However, as soon as we tested the 1.0005 level the pair sharply reversed its earlier losses, and moved to a new intra-day high at 1.0064. There was an increase in risk aversion in the NY morning session which favored the greenback. US equities slid into the red and oil prices dropped to $82.50 which hurt risk appetite. So while those factors combined to move the pair back up in favor of the greenback, the take away from today's report is that Canada looks to be set to return to its normal trade pattern in which trade is consistently adding to GDP.