Canada's trade surplus shrank more than expected in July as imports rose because of the stronger Canadian dollar, while the housing sector proved surprisingly resilient this summer, figures released on Tuesday showed. ( Reuters )
Analysts said the trade report combined with solid numbers for housing starts in August and new housing prices in July highlighted a contrast between robust domestic demand and weakening exports.
The figures are not expected to alter the Bank of Canada's resolve to hold interest rates steady.
"Even though the strong domestic economy and persistent upward pressure on housing prices would normally see the Bank of Canada tighten monetary policy, we expect that the volatility in financial markets and increased downside risks to the U.S. economic outlook will keep the bank on the sidelines for now," said Paul Ferley, assistant chief economist at Royal Bank of Canada.
The July trade surplus narrowed to C$3.66 billion ($3.49 billion) from a downwardly revised C$4.33 billion in June as imports grew twice as fast as exports and soared to a record high, Statistics Canada said.
A stronger currency increases the purchasing power of Canadian companies in foreign countries.
Analysts surveyed by Reuters had expected the surplus to narrow to C$5.0 billion from the original June amount of C$5.27 billion.
"On balance, this is not a great report, but it doesn't necessarily signal softness ahead ...strength in Canadian imports is a testament to the resilience of the Canadian economy," said Charmaine Buskas, senior economist at TD Securities.