Canada's trade deficit narrows dramatically as exports surge

Canada's merchandise trade deficit with the rest of the world nearly vanished in June as exports grew dramatically, Statistics Canada reported today.

The trade deficit came in at $476 million, compared to the revised $3.4-billion deficit recorded the month before. June's trade figures were markedly better than the $2.8-billion deficit that the market had been expecting..

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Exports increased 6.3 per cent to $44.6billion in June, while imports dropped 0.6 per cent to $45.1 billion.That's the best month-over-monthincrease in exports since December 2006.

The fallingCanadian dollar, which has lost about 10 centsagainst the U.S. currency since the start of the year, may finally be helping to boost Canadian companies that shipto American markets, but it's clear that the stronger U.S. economy is also playing a role. Exports to the United States surged by 7.1 per cent in June.

"While a further leg down in oil prices will continue to weigh on the oil sector in Canada, the non-energy sector is likely to continue to benefit from an improving U.S. economy and low Canadian dollar," said TD economist Diana Petramala in a morning commentary, adding that this report willlikely dampen speculation thatthe Bank of Canada might deliveranother interest rate cut later this year.

'Positive sign'

David Madani, from Capital Economics, called the trade report a "positive sign" for the economy, but said "it remains to be seen whether the exportsector can lift the economy out of its oil-related slump."

Export volumes rose4.8 per cent from May.StatisticsCanadareports that this was the first increase following five consecutive monthly declines. Exports were upin nineof11sectors.

The Bank of Canada hasbeen hoping for months that the lower Canadian dollar and lower energy prices would give a boost to the manufacturing sector and to exports.But that benefit hasbeen slow to materialize.

"The 'puzzling'weakness in exports that [Bank of Canada governor Stephen]Poloz noted has reversed to some extent," said BMO senioreconomist Benjamin Reitzes. "Expect this to be the start of meaningfully better June data, though it's a stretch to anticipate continued gains of this size for exports in the months ahead."

The Canadian dollar jumped by more than a third of a cent to 76.26cents US shortly after the trade numbers were released. But much of that gain hadmelted away by the close with the dollar ending little changed from Tuesday at 75.83 US cents.The looniehit an 11-year low on Tuesday.

U.S. trade deficit widens

The U.S. trade deficit rose slightlyin June as solid consumer spending led to more imports, while the strong U.S. dollar held backexports.

The U.S. Commerce Department said Wednesday the trade gap jumped 7 per cent to $43.8 billion in June, up from $40.9 billion in May.

Imports increased 1.2 per cent to $232.4 billion, while exports edged lower to $188.6 billion.