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Canada Aug. Trade Deficit Narrows More Than Expected

Oct. 14 (Bloomberg) -- Canada’s trade deficit narrowed more than expected in August from a record the previous month, as shipments abroad increased and imports fell.

The deficit narrowed to C$1.34 billion ($1.34 billion) in August, from a revised C$2.55 billion in July, which was the largest in records dating to 1971, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg predicted the gap would narrow to C$2.3 billion from an initially reported July gap of C$2.74 billion, according to the median of 16 estimates.

“For the quarter as a whole, trade is still going to be a sharp drag on the economy,” said Derek Holt, economist at Bank of Nova Scotia in Toronto. “We are in a period of prolonged weakness,” in part because of the risk of further strength in the Canadian dollar, he said.

The Canadian currency strengthened before the report today to beyond parity with its U.S. counterpart for the first time since April, in part on speculation the U.S. Federal Reserve will take actions next week to reduce that currency’s value. The Canadian dollar gained as much as 0.5 percent to 99.81 Canadian cents per U.S. dollar, and was down 0.2 percent to C$1.0049 at 9:57 a.m. in Toronto, from C$1.0033 yesterday. One Canadian dollar buys 99.51 U.S. cents.

Trade Deficit

Canada’s trade balance went into deficit at the end of 2008 and was negative for 14 of the next 20 months after a global recession and strengthening currency lowered demand for the country’s manufactured goods. The Bank of Canada estimated in July that trade will reduce the economic growth rate by 1.6 percentage points this year, leaving it at 3.5 percent.

Exports in August rose 3.1 percent to C$34 billion. Higher prices for metals such as gold and copper led a 5.8 percent gain in industrial goods to C$8.02 billion, and the other consumer goods category jumped 27 percent to C$1.62 billion on medical products. Export prices rose 0.2 percent and volumes rose 2.9 percent.

Imports fell 0.5 percent to C$35.3 billion led by automotive products, which dropped 6.5 percent to C$5.84 billion. Import prices fell 0.8 percent and volumes rose 0.3 percent.

Canada’s trade surplus with the U.S., its largest trade partner, widened to C$2.95 billion in August from a revised C$1.53 billion the prior month. The first increase in the bilateral trade surplus since December 2009 was led by a 2.7 percent gain in exports and a 3.3 percent decline in imports, Statistics Canada said.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Christopher Wellisz at cwellisz@bloomberg.net

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