Canada recorded a smaller than expected trade surplus in April as a strong domestic currency hurt exports and demand for Canadian goods outside of the United States fell, government data showed.

Statistics Canada said the nation notched a trade surplus of C$175 million ($168 million) in April after a revised C$236 million deficit for March. Analysts surveyed by Reuters had expected a surplus of C$500 million following the original report of a C$254 million surplus in March.

The value of exports dropped by 1.0 percent to C$32.93 billion, the second consecutive monthly decline, on a fall in the value of industrial goods and materials.

“If you look at the broader picture, it looks like the strong Canadian dollar and strong domestic demand in Canada is going to put downward pressure on net exports,” BMO Capital Markets economist Robert Kavcic said.

“We saw net exports subtract from (economic) growth in the first quarter and much of 2009 and we’ll probably see a small drag on growth going forward for the rest of 2010 as well.

Exports of energy products dropped by 2.6 percent to C$7.69 billion. Exports of natural gas dropped by 20.9 percent, reflecting lower prices and volumes after a mild winter.

Imports fell by 2.2 percent to C$32.76 billion, also due to a drop in industrial goods and materials. Metals and metal ores were the main contributors to the decline, in particular a 30.8 percent drop in precious metals.

The trade surplus with the United States remained steady at C$3.8 billion as exports rose by 0.7 percent, while imports advanced by 0.9 percent.

“It was exports to other countries that declined 5.5 percent and drove the headline lower. Note that exports to the EU plummeted 23.4 percent,” Scotia Capital economists said in a research note.

With Canada exporting C$22 billion to the United States in April but just C$2.6 billion to the European Union, the drop in non-U.S. exports can get exaggerated, the economists said.

“In fact, this drives our point home: that improvements in the U.S. economy matter more to Canada than the EU’s challenges given that exports to the EU account for 8.5 percent of the total whereas exports to the U.S. equal 72 percent of total exports,” they wrote. (Reuters)