Canadian Dollar Strengthens as December Trade Surplus Hits CAD 708 Million, Driven by Rising Exports and Energy Gains

The Canadian Dollar continues to strengthen against the US Dollar, supported by both domestic and global factors. On the home front, Canada’s trade balance for December showed a notable improvement, recording a surplus of CAD 708 million—the first since early 2024. This positive shift was driven by a 4.9% rise in exports, particularly in the energy sector.

The weaker Canadian Dollar has also contributed to higher valuations of exported goods. However, on a yearly basis, Canada’s trade deficit widened to CAD 7.2 billion in 2024, as imports grew at a faster pace than exports.

The US remains Canada’s most significant trading partner, accounting for 76% of exports and 62% of imports. Amid ongoing global trade tensions, this reliance adds uncertainty to the Canadian Dollar’s outlook in the months ahead.

January’s S&P Global Services PMI edged up to 49 but remained in contraction for a second month. Market uncertainty and a sharp drop in new export business weighed on performance.

External factors may support the Canadian dollar in the short term. The unexpected decline in the U.S. ISM Services PMI could signal a dovish shift by the Federal Reserve, potentially weakening the U.S. dollar and boosting the Loonie.

However, global trade tensions and the upcoming U.S. Nonfarm Payrolls report add uncertainty. Strong NFP data, following today’s ADP figures, could reinforce confidence in the U.S. labor market, strengthening the dollar and pressuring the Canadian currency.