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Canada recorded its fourth consecutive monthly merchandise trade surplus in June, with exports and imports both reaching record levels. Exports rose 0.4% m/m to CAD 77.5B, while imports edged up 0.2% to CAD 73.6B, allowing the trade surplus to widen modestly from CAD 3.7B to CAD 3.9B. The latest figures extend a strong run for exports, which have increased for five straight months and are up 22.8% since January.

The headline strength, however, was partly a reflection of exchange-rate movements. The Canadian dollar posted its largest monthly decline against the US dollar since October 2022, boosting the value of trade when converted into Canadian dollars. In US-dollar terms, both exports and imports actually contracted by around -2% in June. Nevertheless, export volumes increased 1.1%, indicating that the improvement was not purely the result of currency translation.

Bilateral trade with the United States remained firm, though Canada's surplus narrowed as imports grew faster than exports. Shipments to the US rose 0.3%, extending their growth streak to five months, while imports climbed 3.0%, driven mainly by computers and related equipment. Beyond the US, imports fell -3.7%, reflecting weaker purchases from China, South Korea and Germany. At the same time, exports to non-US markets increased 0.7%, helped by stronger gold shipments to the United Kingdom despite weaker exports of energy products and aluminum to the Netherlands.

Overall, the June report suggests Canada's external sector remains in good shape, but the details are more nuanced than the headline figures imply. Record export values and a wider trade surplus are encouraging, yet the weaker Canadian dollar exaggerated part of the improvement. With export volumes still advancing and trade outside the United States showing signs of improvement, the underlying trend remains constructive, although sustaining that momentum will likely depend on continued strength in global demand rather than currency effects alone.

Data Summary

Key Takeaways

• Canada's merchandise trade surplus widened from CAD 3.7B to CAD 3.9B, marking a fourth consecutive monthly surplus.
• Both exports (CAD 77.5B) and imports (CAD 73.6B) reached record highs, with exports rising for a fifth straight month.
• The weaker Canadian dollar boosted headline trade values. In US-dollar terms, exports and imports both declined around 2%, highlighting the currency's contribution to the record figures.
• Export growth was supported by higher shipment volumes, with real exports increasing 1.1%, indicating underlying trade remained resilient.
• Canada's surplus with the United States narrowed as imports from the US grew faster than exports.
• Trade with the rest of the world improved, helped by stronger gold exports to the UK and weaker imports from China, South Korea and Germany.

Full Canada trade balance release here.

Federal Reserve Bank of Philadelphia President Anna Paulson made clear that another rate hike remains on the table, but only if incoming data show inflation is failing to resume its downward path. In remarks on Tuesday, Paulson welcomed recent progress, saying "the recent improvement in some inflation data is welcome," but quickly cautioned that "it is only one step." She reiterated her support for last week's decision to leave the federal funds target range unchanged at 3.50-3.75%, while stressing that future policy will remain firmly data dependent.

Rather than offering guidance on the Fed's next move, Paulson emphasized the conditional framework increasingly adopted under Chair Kevin Warsh. "I am committed to keeping an open mind as I assess the evidence and determine the appropriate path for policy," she said. While noting that current policy is already restraining economic activity, she explained what would change her outlook: "If policy is appropriately calibrated, I would expect to see growing signs that inflation is coming down." However, "if instead underlying inflation remains stubbornly elevated, the passage of time without progress would itself signal that more restrictive policy is needed."

Paulson also distinguished between temporary supply shocks and persistent underlying inflation. She argued that the brief easing in Middle East tensions showed energy-related price spikes can prove transitory and therefore should not automatically drive monetary policy. Instead, her focus remains on underlying inflation, which she estimated at 2.4% to 2.8%, describing it as "what I am most focused on" because it has remained elevated for an extended period.

Key Takeaways

• Philadelphia Fed President Anna Paulson supported last week’s decision to keep rates unchanged at 3.50–3.75%, but stressed that one better inflation reading is not enough to declare progress secure.
• Her key condition for another hike is persistent underlying inflation without further improvement. As she put it, “the passage of time without progress would itself signal that more restrictive policy is needed.”
• Paulson estimates underlying inflation at around 2.4%–2.8% and said this is the area she is “most focused on,” rather than temporary swings in headline inflation.
• She argued that energy shocks linked to the Middle East can be temporary and should generally be looked through when setting policy.
• Her stance is cautiously hawkish: current policy may be sufficiently restrictive, but only if inflation continues to move lower.
• The remarks fit the post-Warsh communication framework, with officials emphasizing conditions for action rather than offering forward guidance on the next meeting.

Japan's Economy Minister Minoru Kiuchi struck a more measured tone on inflation than the Bank of Japan, suggesting the recent surge in energy prices has yet to generate broad-based consumer price pressures. Speaking at a press conference on Tuesday, Kiuchi said the pass-through from the Middle East conflict has so far remained limited, noting that "the overall consumer price index rose 1.7% year-on-year in June, showing only moderate rises." His remarks contrasted with the BoJ's warning last week that inflation risks could overshoot its 2% target.

Kiuchi acknowledged that inflationary pressures could build in the months ahead, saying policymakers "do need to be vigilant to the possibility that costs could be gradually passed onto food and other consumer goods from summer through autumn." Still, he emphasized that households should be better placed to absorb higher prices, forecasting average real wages to rise by nearly 1% in the current fiscal year while pointing to government fuel subsidies as an important buffer against higher living costs.

While avoiding direct criticism of the BoJ, Kiuchi's comments appeared to temper market expectations for a more aggressive policy response. He said he hoped the central bank would "continue to guide appropriate policy to stably and sustainably achieve its 2% inflation target," language consistent with his long-standing preference for accommodative monetary settings. The remarks suggest the government remains more comfortable with a gradual approach to policy normalization even after the BoJ raised interest rates to 1% in June.

Key Takeaways

• Japan's Economy Minister Minoru Kiuchi offered a more measured assessment of inflation than the BoJ, saying June's 1.7% CPI increase still represented only "moderate" price rises.
• While acknowledging that higher energy costs could gradually feed into food and consumer goods prices, Kiuchi stressed that cost pass-through from the Middle East conflict has so far remained limited.
• Kiuchi expects real wages to rise by nearly 1% this fiscal year and highlighted government fuel subsidies as an important buffer against higher living costs.
• His remarks contrasted with the BoJ's stronger warning last week that inflation could overshoot its 2% target, suggesting the government sees less urgency for further monetary tightening.
• Although Kiuchi reiterated support for the BoJ achieving its inflation target, his comments reinforced the government's preference for a gradual and cautious normalization of monetary policy.