August 6, 2014 / 12:42 PM / 3 years ago

Canada trade surplus widens to two-and-a-half year high of C$1.9 billion

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A truck is loaded with a container at the Port of Montreal, September 27, 2010.Shaun Best (CANADA - Tags: TRANSPORT) - RTXSQDV

OTTAWA (Reuters) - Canada's trade surplus soared unexpectedly to a 2-1/2-year high of C$1.86 billion ($1.69 billion) in June, boosted by record exports and falling imports, Statistics Canada data indicated on Wednesday.

Market analysts had expected a flat trade balance in June, and Statscan revised May's data to a surplus of C$0.58 billion from an initial deficit of C$0.15 billion.

The June surplus was the largest since the C$2.43 billion recorded in December 2011.

The Bank of Canada has kept its key interest rate frozen at near-record lows since September 2010 and says it will not contemplate a hike until the sluggish economy - in particular the non-energy export sector - picks up.

The central bank and market analysts have frequently predicted that Canada, which sends 75 percent of all exports to the United States, will benefit as the U.S. economy recovers.

The value of exports rose by 1.1 percent to a record C$45.20 billion on metal and non-metallic mineral products, consumer goods and energy products.

This growth was due largely to higher export volumes, which increased by 1.0 percent. Prices rose by 0.2 percent.

"It looks as though trade is going to add more to GDP growth in the second quarter than previously expected. The rotation to more export-driven growth could finally be taking shape," said BMO Capital Markets economist Benjamin Reitzes.

The Canadian dollar CAD strengthened on the data, trading at C$1.0945 or 91.37 U.S. cents, stronger than Tuesday's close of C$1.0960 or 91.24 U.S. cents.

Yet in a sign the economy is still nowhere near full capacity, imports dropped by a full 1.8 percent from May, the largest month-on-month decrease in 18 months.

Declines were recorded in eight of the 11 main categories, indicating weak domestic demand.

Exports to the United States, which made up 75.4 percent of Canadian exports in June, were flat while imports rose 1.5 percent. As a result, the trade surplus with the United States narrowed to C$5.00 billion in June from C$5.44 billion in May.

(This story has been refiled to correct paragraph seven to show export prices in June rose rather than fell)

Additional reporting by Leah Schnurr in Toronto; Editing by Bernadette Baum and Meredith Mazzilli

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