CIBC on Economic Forecast, Markets' Reaction to Canada's Merchandise Trade Data

11:25 AM EDT, 10/07/2025 (MT Newswires) -- The recovery in Canadian trade from Q2's weakness was never going to be a straight line and August saw a curve in the wrong direction with the trade deficit widening by more than expected, said CIBC after Tuesday's data.

Although the move was driven partly by monthly volatility in gold trade, weakness in other export areas also highlights the continued struggles of companies in the face of United States tariffs, noted the bank.

While net trade may still be a positive for gross domestic product in Q3, the bounce back appears weaker than CIBC had anticipated before Tuesday's release.

The deficit in goods trade ballooned to $6.3 billion in August, from a revised $3.8 billion in the prior month and not too far from the widest point recorded in April. Exports fell by 3.0% month over month in nominal terms, while imports increased by 0.9% month over month.

Volatility in gold had an impact on both exports and imports. Excluding that one category, exports would have fallen by a less severe 2.2%, while imports would have fallen by 1%, rather than increasing.

Overall, Tuesday's data mark a backward step in the recovery of Canadian exports, according to CIBC. While net trade is still expected to be a positive contributor to Q3 GDP, it's likely to be smaller than what the bank previously expected, and there's a risk that August GDP is now a slight negative -- rather than the flat reading suggested by the advance estimate.

Canadian bond yields fell slightly on Tuesday's release, although the Canadian dollar (CAD or loonie) was little changed relative to the US dollar (USD), added CIBC.

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