The RBC Canadian Manufacturing Purchasing Managers Index registered 53.3 in March, the 12th consecutive month that the PMI has indicated expansion.
The monthly report said there was a solid improvement in business conditions last month, especially with exports, but producers also experienced higher costs due to a weaker Canadian dollar.
"Manufacturers reported a welcome recovery in new order volumes, helped by stronger export demand, and this in turn supported job creation during March," said Cheryl Paradowski, president and chief executive officer of a national association for purchasing managers.
"Input prices meanwhile continue to rise sharply in the wake of the weakening exchange rate," Paradowski added.
The RBC monthly PMI report said the new export orders in March increased at the second-fastest pace since October but input costs rose at the steepest pace since May 2011.
The report also noted that manufacturers' production was held back last month by supply disruptions that led to longer delivery times for raw materials.
Last month's reading is up from 52.9 in February – which marked a six-month low – and the highest since December.
A reading above 50.0 indicates an expansion in the Canadian manufacturing sector while readings below that level indicate the sector is declining.
"Canada's manufacturers have experienced solid conditions for growth in the last year, and March was no different – we saw a nice uptick from a month earlier," said Craig Wright, RBC's chief economist.
"We continue to expect that underlying economic conditions – a strengthening U.S. economy and a weaker Canadian dollar – will lay the foundation for a boost in domestic manufacturing in the near-term."
The index is published by Royal Bank in co-operation with the Supply Chain Management Association and Markit, a financial information company that produces similar reports for several economic areas around the world.
The RBC PMI report is consistent with other indicators that have suggested that the reduced value of the Canadian dollar has been improving the lot of exporters.
The loonie has been below parity with the U.S. dollar since February 2013 and is currently worth about 90 cents US – making Canadian goods relatively less expensive in the United States.
The RBC Canadian Manufacturing PMI is based on feedback about new orders, output, employment, supplier delivery times and stock of items purchased.