Trade surplus weakens on currency's strength

Thu Mar 10, 2011 12:18pm EST
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By David Ljunggren

OTTAWA (Reuters) - Canada reported a much smaller-than-expected trade surplus in January as the red-hot Canadian dollar pushed imports up at a considerably faster pace than exports.

The trade surplus shrank to just C$116 million ($118 million) in January, Statistics Canada said on Thursday, as the value of imports hit a two-year high.

That was far less than the C$2.60 billion forecast by market operators. Statscan revised December's surplus down to C$1.71 billion from an initial C$3.00 billion.

The Bank of Canada has expressed consistent concern that the strength of the country's currency is undermining exports and crimping the economic recovery.

The bank said on March 1 that the export sector faced considerable challenges due to the currency's persistent strength -- it has been trading near three-year highs against the U.S. dollar this week -- and Canada's poor relative productivity performance.

Some analysts, however, noted that shipments abroad rose for the fourth consecutive month in January.

"We think that today's trade numbers actually have a more hawkish interpretation for the Bank of Canada, as the economy is coping quite well with what was deemed to be a persistent downside risk," said TD Securities analyst Jacqui Douglas.

Exports edged up by 0.8 percent to C$37.52 billion as higher shipments of automotive, industrial and energy products outweighed drops in exports of machinery and equipment as well as agricultural and forest products.   Continued...