Canada's merchandise trade deficit narrowed more than expected to $1.5 billion in October as exports improved for the first time since May.
Statistics Canada said Tuesday that exports increased 2.7% as imports fell 1.6% for the month, shrinking the country's trade deficit compared with the $3.4-billion shortfall in September.
Economists had expected a deficit of $2.7 billion for October, according to Thomson Reuters.
TD Bank economist Dina Ignjatovic noted that the recovery in export volumes in October fully erased declines in August and September and provides a stronger handoff for the fourth quarter.
"Looking ahead, exports should manage to gain some traction, supported by a healthy U.S. economy and a Canadian dollar hovering around the US80¢ mark."
"Moreover, the strike at an auto assembly plant that weighed on exports through the first half of the month should lead to higher motor vehicle exports going forward."
The Bank of Canada is scheduled to make its next interest rate announcement on Wednesday. The central bank is expected to keep its key rate target on hold at 1% cent after raising it by a quarter of a percentage point twice earlier this year.
Ignjatovic wrote that the trade report, combined with last week's Statistics Canada report that said 79,500 jobs were added in November, will be looked favourably upon by the Bank of Canada.
"With most other areas of the economy evolving as expected by the bank, higher interest rates are not far off," she wrote.
Exports totalled $44.5 billion in October, as gains were made in nine of 11 sectors. Prices were up 1.5% and volumes increased 1.2%.
Exports of basic and industrial chemical, plastic and rubber products gained 12.4%, while metal and non-metallic mineral products increased 4.5%.
Meanwhile, imports fell to $45.9 billion in October, mainly due to a drop in motor vehicles and parts which fell 8.1%. Import volumes fell 3.9% while prices rose 2.4%.
Statistics Canada said passenger cars and light trucks were down 8.8% in October, while work stoppages and planned shutdowns in the automotive industry led to a sharp decrease in the demand for automotive components.