Canada trade surplus narrows, new home prices up

Wed May 12, 2010 10:32am EDT
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By Ka Yan Ng

TORONTO (Reuters) - Canada's trade surplus fell sharply and unexpectedly in March due to a drop in prices for energy exports, while new home prices continued their steady rise.

Statistics Canada said on Wednesday the trade surplus shrank to C$254 million ($249 million) in March from C$1.15 billion in February. Analysts surveyed by Reuters had expected the surplus to rise slightly to C$1.55 billion, forecasting modest gains in both exports and imports.

Canada's trade surplus had been larger than expected in both January and February.

Statscan also said on Wednesday that the price of new homes in Canada edged up 0.3 percent in March, matching expectations, following a 0.1 percent increase in February.

The rise continued an upward trend that began in July 2009, and is in line with other recent housing data, including a 1.3 percent rise in April housing starts to more than 200,000 units.

Analysts said trade's diminished contribution to overall first-quarter economic growth is unlikely to derail expectations that the Bank of Canada will raise interest rates next month to cool the economy down a bit.

"The recovery's growth momentum and supercharged increase in employment in April sets the stage for the Bank of Canada to temper the current highly stimulative level of monetary policy support with the first move likely to be announced at the June 1 fixed action date," said Dawn Desjardins, assistant chief economist at Royal Bank of Canada.

The Canadian dollar pared gains following the data, while bonds were relatively steady in negative territory. The market view of the probability of an interest rate increase in June, as measured by yields on overnight index swaps, dipped slightly and was sitting near a 50/50 chance after the trade figures were released.   Continued...

<p>A container ship departs Burrard Inlet in Vancouver, British Columbia in this March 6, 2009 file photo. REUTERS/Andy Clark</p>