Key Takeaways:
Canada's merchandise-trade surplus widened to C$3.86 billion in June, a four-year high, as record exports and a softer loonie reinforced the Bank of Canada's case to keep rates on hold.
Canada's merchandise-trade surplus widened to C$3.86 billion in June, a four-year high, as exports climbed for a fifth straight month to a record C$77.79 billion, reinforcing the Bank of Canada's resolve to hold its policy rate at 2.25 percent. The reading beat the C$3 billion balance economists had expected and came after May's surplus was revised down to C$3.7 billion.
"June's data confirm that a further rebound in export volumes from the lows seen in 2025 appears to have been a large driver of the strength in GDP signaled for the second quarter," said Andrew Grantham, senior economist at CIBC Capital Markets.
Exports rose 0.4 percent to C$77.79 billion, buoyed by a nearly 28 percent jump in unwrought precious metals, while imports edged up 0.2 percent to C$73.63 billion. Total exports jumped 13.1 percent in the second quarter, the strongest quarterly increase since the third quarter of 2020, with almost half of the gain driven by energy products and a 19.3 percent rise in motor vehicles and parts.
The data point to net trade adding roughly four percentage points to annualized second-quarter GDP growth, which Canada is tracking at about 3.4 percent — the fastest pace since the first three months of 2023. That strengthens the central bank's case to hold its overnight rate at 2.25 percent for a seventh consecutive decision, even as President Trump threatens a 50 percent tariff on certain Canadian goods as early as Aug. 19.
The value of Canadian trade was inflated by a weaker currency, which depreciated 1.7 percent against the U.S. dollar in June, the sharpest monthly retreat since October 2022. In U.S. dollar terms, exports declined 2 percent and imports fell 2.1 percent between May and June.
Shipments to the U.S. rose 0.3 percent for a fifth consecutive month, while imports from the U.S. climbed 3 percent to a record, evidence of Canada's continued reliance on its largest trading partner. Canada's longstanding surplus with the U.S. narrowed to C$9.98 billion from C$11.12 billion a month earlier, while the deficit with non-U.S. countries narrowed to C$6.13 billion from C$7.42 billion.
Exports of energy products fell 10 percent, mainly on lower crude oil prices, offsetting gains in gold shipments to the U.K. and record copper ore exports to Japan, China, Finland and South Korea. On the import side, a 42.8 percent surge in electronic equipment, led by processing units for data centers, drove the modest monthly rise.
RBC Economics' Nathan Janzen said the trade data is tracking net trade adding about four percentage points to annualized second-quarter GDP growth, with the bank's base forecast sitting at 2.2 percent and roughly one percentage point of upside risk. Stripping out price moves and volatile gold, export volumes reached a record in the quarter, rising at an annualized 23 percent from the first quarter.
"With all of the monthly data for the second quarter now in, the trade balance's flip into a sizeable surplus implies net trade made a healthy contribution to overall GDP growth," said Bradley Saunders, North America economist at Capital Economics. "This still does not change our forecast for the Bank of Canada to leave rate hikes until 2027, however, given that this strength follows two quarters of weakness and is in large part attributable to a temporary boost to the oil and gas sector."
The Bank of Canada held its overnight rate at 2.25 percent for a sixth consecutive time at its July 15 decision, and a firming GDP print reinforces rather than relieves that posture. The threat of new U.S. tariffs remains the key swing factor: Grantham noted export volumes could see a small bump if companies front-run implementation, but a negative effect would follow if the levies take effect. More than 80 percent of Canadian exports to the U.S. are projected to remain duty-free under CUSMA exemptions, though steel volumes remain under pressure, down 12 percent year over year.
This article is for informational purposes only and does not constitute investment advice.
