Trade Surplus Falls to Nine-Year Low
Today, Statistics Canada revealed that our December 2007 merchandise trade surplus was the lowest one since November 1998. This fact is yet more evidence that the rise in energy exports has been smaller than the decline in exports from manufacturing and other sectors.
The conventional story about high oil prices driving-up the loonie assumes that these prices have increased our trade surplus and hence foreign demand for Canadian currency. However, todayâ€™s numbers confirm that our trade surplus has decreased. Other things being equal, this decrease would tend to reduce foreign demand for Canadian currency. Indeed, todayâ€™s merchandise-trade figures have slightly lowered the exchange rate.
Notwithstanding the trade surplus, the fact remains that high oil prices have raised the Canadian dollar to parity with the US dollar. Jim and I have put forward some alternate explanations of the oil-loonieÂ relationship.