Canada’s trade deficit widened in February to CAD 5.7 billion, compared with market expectations of CAD 2.5 billion. The data showed sharp rises in both exports and imports.
Around one third of the increase in imports came from a surge in gold products. Imports of equipment and consumer goods also increased.
Motor vehicle exports rose strongly. This followed production disruptions that weighed on manufacturing output in late 2025 and early 2026.
Net trade is tracking as a subtraction from first-quarter GDP growth, alongside strength in domestic business and consumer spending. March’s nominal deficit is expected to narrow, as the February jump in gold imports may not repeat.
The report also stated that trade in 2026 is expected to be a smaller drag on Canadian growth. The piece was produced using an AI tool and reviewed by an editor.
The February trade deficit was a surprise, widening to $5.7 billion when a much smaller gap was expected. This news initially pushed the USDCAD exchange rate towards 1.3650, as the headline figure suggests weakness for the Canadian dollar. We see this as a potential market overreaction based on a single, noisy data point.
Looking deeper, the deficit was driven by a one-time surge in gold imports, which is not expected to repeat in March. More importantly, the data showed stronger domestic demand for equipment and consumer goods. This underlying strength was recently reinforced when the Bank of Canada held its key interest rate at 4.5% in its March decision, citing persistent domestic demand pressures.
We also see positive signs in the surge in motor vehicle exports, which confirms that the production issues that slowed manufacturing late in 2025 are now easing. In fact, the most recent S&P Global Canada Manufacturing PMI for March 2026 climbed to 51.2, marking the first expansionary reading in six months. This adds credibility to the idea of a recovering export sector.
Given these details, we should view the initial Canadian dollar weakness as an opportunity. The market seems to have focused on the negative headline, creating a chance to position for a stronger CAD in the coming weeks as the temporary factors fade. Options strategies that benefit from USDCAD moving back down toward the 1.3400 level could be considered.
The report also highlights how volatile Canadian data can be, a pattern we also observed in late 2025. One-month implied volatility for USDCAD has ticked up to 7.0% from 6.5% before the report, showing the market is now pricing in more uncertainty. This suggests that buying straddles or strangles ahead of the upcoming Q1 GDP report could be a prudent strategy to trade potential surprises in either direction.
