Canada is headed for what could be a seventeenth-straight monthly trade deficit – the result of weak commodity prices and the sluggish global economy.
The consensus among economists is that the merchandise trade deficit widened to $700-million in May, up from $567-million in April.
The figures are due to be released Wednesday from Statistics Canada.
But the recent string of deficits obscures other more positive news on the trade front.
The recent plunge in the Canadian dollar – to 95 cents (U.S.) from par – could make exporters much more competitive in the months ahead.
"The Canadian dollar has traded weaker than parity for five straight months and we anticipate further depreciation through year end, providing a boost to exporters," Bank of Montreal senior economist Benjamin Reitzes said in a research note.
Secondly, all indicators point to an improving U.S. economy, particularly in the housing and auto sectors. That is boosting demand for many key exports.
And finally, if not for weaker commodity prices, Canada's trade deficit might well be back to surplus already. Canadian export volumes have increased at an annual rate of 12 per cent over the past six months.
All that helps explain the growing bullishness among Canadian exporters.
Export Development Canada's semi-annual trade confidence index rose to 72.6, up from 70.7 in last fall's survey.
"Embedded in these numbers are the good things that are going on in the United States," explained Peter Hall, EDC's chief economist.
"Folks are seeing that orders are rising and they're more convinced that this is the real thing," he added.
Economists have had a tough time accurately forecasting the monthly trade balance. Partly to blame is the fact that Canada is a commodity exporter, and prices can fluctuate significantly, affecting the headline trade number.
CIBC economist Emanuella Enenajor said unplanned maintenance at oil facilities in Western Canada may have lowered shipments to the U.S. in May. That could be partially offset by slightly higher crude prices.
"Watch out for volatility in volumes of crude oil imports and exports, as that has been one of the key swing factors for the real trade balance in recent months," pointed out economists Derek Holt and Dov Zigler of Bank of Nova Scotia.
Toronto-Dominion Bank said the "mixed tone" of U.S. economic data and the volatility of the Canadian dollar is making the trade balance tougher than usual to call.
"On the one hand, softness in economic data suggests that exports were subdued in May, while on the other hand, a significant depreciation in the Canadian dollar may have improved the competitiveness of exports," TD said in a research note.
And so while most economists are calling for a merchandise trade deficit in May, the range of forecasts is wide – from near-balance to a shortfall of more than $1-billion.