A shift into safer assets was generated today by bearish reports out of the world’s leading economies. Among these figures were the Canadian and American trade balance figures.
Canada’s trade balance was largely on target with expectations, highlighting a C$0.6B growth in Canada’s surplus. The CAD has seen little movement as a result, but traders should feel confident with the Loonie’s strength considering these numbers.
The American trade balance told a different story, however. With America’s trade deficit widening from last month’s -$45.4B to this month’s -$48.2B, many investors felt insecure about seeking higher yields. Today’s data, as such, appears to have caused many investors to seek safer assets like the Japanese yen, Swiss franc, and even US dollar.
What a widening trade deficit signifies, moreover, is the inability of American companies to export at previously established levels. With the greenback sitting in a relatively weakened position, American buying power should have diminished, causing the downturn in imports which should have helped the move towards a narrower deficit.
This means the weaker buying power has yet to stem the demand by US-based companies for foreign goods. It may also have a correlation with last summer’s poor crop yields which may have forced countries with large populations to feed to look elsewhere for food imports.
In sum, the USD should see further downticks in order to help boost exports and diminish demand for foreign goods by weakening American buying power. The widening deficit signals that this shift in sentiment towards imports and exports has not yet occurred and will likely have an impact on delaying further interest rate hikes by the Fed, thus holding the USD at its recent low levels.
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Greg Holden is the Chief Market Analyst at ForexYard. Greg uses his detailed knowledge of fundamental and technical analysis to provide some of the leading market forecasts in the forex world today. A guest lecturer at forex symposiums and Chief Editor of ForexYard's analysis center, Greg brings highly detailed and easy-to-use market analyses to his clientele. He has been published on ForexYard's Trading Blog and affiliate websites. Greg holds degrees in Political Science and Economics from Missouri State University, as well as a Masters degree in Middle Eastern History.
