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If Canada's recent gross domestic product numbers buoyed thoughts that Bank of Canada interest rate increases may not be as far away as generally assumed, the country's latest trade data provide a compelling counter-argument. The economic growth may be there, but it's not where the central bank wants to see it.

Indeed, the November trade report, released by Statistics Canada Tuesday morning, had all the chill of a bucket of ice water. Not only was November's deficit of $940-million far bigger than the flat-to-$100-million estimates of Bay Street economists, but October's trade balance, originally reported as a $75-million surplus, was revised massively downward to a $908-million deficit. That's close to $2-billion more in trade outflows than the market, the experts and the Bank of Canada had pencilled into their models.

The foreign exchange markets did not take kindly to this rude awakening. Traders wiped almost a full cent off the Canadian dollar versus its U.S. counterpart. The selloff was accelerated by the release of the Ivey Purchasing Managers Index (PMI) for December, which slumped to a seasonally adjusted 46.3, its weakest reading since the middle of 2009, implying a contraction in Canadian business activity in the month.

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And why not sell Canada? When your export demand and your domestic demand both show unexpected signs of a stall-out, it's hardly a glowing recommendation.

More to the point, Canada's interest rate story just weakened with these data – which in the currency market is the biggest driver of demand, or lack thereof. To the extent that they suggest Canada's economic growth slowed toward the end of 2013, they provide cause for an already cautious Bank of Canada to move even further away from considering rate increases.

The Ivey PMI can (and probably should) be taken with a grain of salt; this index, even in its seasonally adjusted form, can be pretty swingy from month to month and isn't always the best indicator of GDP growth. But the surprising trade weakness, especially for the Bank of Canada, is harder to ignore.

Yes, Canada's GDP has come in stronger than expected in the past few months, with the most recent data, for October (up 0.3 per cent in the month), suggesting that growth remained in line with the 2.7 per cent annualized pace posted in the third quarter of 2013. And you could argue that the surprise trade deficit for October apparently wasn't a severe drag on growth, given the solid GDP performance in the month; perhaps other segments of the economy are accelerating to make up for trade's sluggishness.

But that's not going to cut it for the Bank of Canada Governor Stephen Poloz. He considers an acceleration in trade to be a cornerstone to sustained, "natural" economic growth – the kind that doesn't require substantial juicing by historically rock-bottom central bank interest rates. It's a good bet that unless and until Mr. Poloz sees a convincing recovery in exports, he will continue to lean away from rate increases.

Now, it should be noted that since November, Canada's terms of trade, especially in the all-important commodities segment, have actually improved markedly, thanks chiefly to healthier prices for Canadian energy exports. Those numbers, together with the expected continued acceleration of the U.S. economy, could mean that the trade weakness of the fall was a temporary setback.

Still, until such factors start translating into a healthier trade sector, expect the Bank of Canada to withhold its approval – and the forex traders to do likewise.

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