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U.S. Trade Deficit Falls to $40.4 bln, Lowest Level Since 2003

Tuesday, 13 January 2009 13:42:09 GMT  |  Antonio Sousa, Chief Strategist

The United States Commerce Department reported today that the U.S. Trade deficit fell to $40.4 bln in November, the lowest level in five years, from $57 bln in October. The report showed a record fall in the amount of imports from China and a remarkable fall in the demand for oil. The U.S. dollar extended gains against the euro after the government report was announced.

source: Bloomberg

 

Forecast for the U.S. dollar

The U.S. dollar has been very strong over the past two weeks, particularly against the euro. In fact, the EUR/USD fell by more than 800 pips since the beginning of the year, trading from 1.40 to 1.32 in just a matter of two weeks. However, more important that the past is the future and I expect more dollar strength going forward. First, a severe U.S. dollar undervaluation is now likely to lead to a substantial improvement of the U.S. Balance of Payments through continued strong export performance (today, the trade deficit fell to a 5 year low). Second, with the world economy slowing down is reasonable to think that the demand for commodities will also begin to slow down. As a result of this, commodity sensitive currencies like the Canadian dollar, Australian dollar and New Zealand dollar will be particularly vulnerable against safe heaven currencies like the U.S. dollar. Finally, a significant shift of interest rate expectations in favor of rate cuts by central banks around the world (ECB will be next) is likely to help the U.S. dollar to rally further.

Written by Antonio Sousa, Chief Strategist for DailyFX.com

To contact the author of this report, e-mail asousa@fxcm.com

 

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