Canadian Dollar: Trade surplus supports cautious outlook – RBC

Royal Bank of Canada’s (RBC) Nathan Janzen notes Canada’s trade balance swung to a $4.2 billion surplus in August, helped by higher energy prices and a rush of exports to the United States (US) ahead of new tariffs. He highlights strong energy exports, resilient non-tariffed trade flows, and improving domestic demand, while expecting limited broader economic spillovers and a gradual per-person recovery.

Trade surplus and tariff effects

"Canada's trade balance rose sharply to a $4.2 billion surplus in August, boosted by higher energy prices and a surge in exports ahead of new U.S. tariffs imposed late in the month."

"The monthly trade data is notoriously volatile, but looking ahead to September, energy prices continued to move higher with crude oil prices up another 16%. And global shortages of refined products are also driving Canadian energy exports higher -- refined product exports (like diesel) were up 13% excluding price impacts in August."

"Still, exports to the U.S. excluding tariffed products, and energy products rose ~16% by our count year-over-year."

"And domestic demand continues to show signs of life -- import volumes (excluding price impacts) fell by 1.7% but imports of machinery and equipment (a key indicator of business investment) and consumer goods (an indicator of consumer demand) both rose."

"We continue to expect the new tariffs imposed by the U.S. administration will have a significant impact on directly targeted sectors but with more than 80% of Canadian exports to the U.S. still maintaining duty free access under CUSMA we expect limited spillover to the broader economy."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)