Exports rose $639 million from the month prior to $40.1 billion in March while imports were down $104 million at $34.5 billion, fuelling the surplus in nominal terms. However, on a volumes basis, exports generally declined except in the energy sector, Statistics Canada said.

"While the employment and trade headline numbers came in better than expected, the underlying details point to weakness," said Scotia Capital economist Karen Cordes, who said the report provides further justification for a 50 basis point rate cut by the Bank of Canada at its June 10th policy meeting. Canada's real trade balance has been on a steady downward trend since 2002 and is firmly in negative territory, she noted.

"At the outset, it seems that Canada's trade sector is defying several major headwinds, including a strong Canadian dollar and a depressed U.S. economy as Canada's trade surplus widened out to the highest level since May 2007. However, all of the export growth can be attributed to a rise in prices, suggesting that the export sector continues to be a large drag on real GDP, further supporting our view that the Bank of Canada will cut the overnight rate by 50 bps on June 10," she wrote in an e-mail.

Cordes wasn't alone in her assessment of the implications of the trade sector on the economy. Avery Shenfeld and Krishen Rangasamy warned in a research note Friday that given the U.S. slump and appreciation of the loonie, real exports will drag on GDP over the next two quarters.

"After pushing the annualized GDP growth below 1% in Q4, net trade will be less of a drag on Q1 growth than it was in the prior quarter, but exports in isolation were dropping in real terms. We expect a sub-1% annualized GDP growth for Q1, as the drop in imports reflects softer domestic demand and a drop in inventories. Looking ahead, elevated commodity prices will continue to support nominal trade and the current account, which should prop up the already high-flying Canadian dollar," they wrote. "The above-consensus trade number for March is clearly supportive of the Canadian dollar which rallied on the news. But as was the case for the US, the positive growth spin from an improvement in the trade balance was countered by the drop in real export volumes on the month."

Even in nominal terms, Canada's trade surplus may be headed lower, said TD economist Dina Cover.

"The positive impact of prices on the overall trade surplus will be offset by the growing impact of U.S. softness on export volumes, particularly in autos and forestry. In addition, imports will hold up better overall, as Canada's relatively strong domestic economy together with the high Canadian dollar, continue to keep demand well supported," wrote Cover in a commentary. "On balance, look for the negatives to outweigh the positives, leading to a lower monthly surplus in the range of $4-5 billion."

By Sean McKibbon, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Cristina Markham, This email address is being protected from spam bots, you need Javascript enabled to view it