StatsCan just released our Merchandise Trade report for the month of August. Merchandise trade is the difference in exports that we sell to foreign countries vs imports we buy from foreign countries, and it is just merchandise, not services. This came in at a very negative C$-3.4 billion with the average of economist's forecasts for only a C$-2.6 billion. This means we are importing about C$3.6 billion more than we are exporting. See below:
Notice how over the past year or so that the merchandise trade report has gone from C$+1 billion to ~C$-3 billion? What really drove this surprising deficit was the fact that exports were down 1% in August but down 10.6% since May 2017, reflecting one of the worst three-month declines on record. Hmmm, the month of May also coincides with the recent weakest point in the C$. See the chart below for the USD/CAD (in US$ terms, higher is a stronger US$ and a weaker C$):
Interesting how the Canadian economy was clipping along in the 1H17 with ~4% GDP growth and the currency at ~1.3800 but as soon as the Bank of Canada hiked rates 2x and the C$ rallied about 10% (to 1.2100), the export machine completely shut-down. I hope our leaders in Ottawa are not patting themselves on the back too much about the 1H17 economic growth - arguably it was all due to a strong export machine driven by a weak C$. That has now changed dramatically.
All part of the reason why we think the Canadian economy will slow a fair bit going into the 2H17. This will lead the Bank to pause on further rate hikes and that is now driving the USD/CAD (second chart) higher over the past month. Armed with some of this knowledge/expectation, we were proactive and purchased US$ and sold C$ back in July.