U.S. and Canadian Trade Don't Balance

Last updated 11/13/2009 8:52 AM ET (GMT -5) 2 Comments

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Kathy Lien

Director of Currency Research, GFT

U.S. and Canadian trade numbers were released this morning and to the surprise of dollar bulls, the U.S. trade deficit jumped 18 percent to $36.5B in September, the widest gap since the beginning of the year. Canada on the other hand reported very strong trade numbers with their deficit falling by more than 50 percent in the same month. For the 2 countries sharing the same border, things could not be any more different. As a result, no one should be surprised by the sharp sell-off in the USD/CAD following the trade results.

Although the U.S. dollar is not providing any obvious benefit to trade, what we are seeing is its impact on prices. Despite the greenback's lower value in September, imports outpaced exports but import prices rose 0.7 percent in October. Crude oil imports contributed to the rise, but Americans also had strong demand for automobiles, industrial supplies and civilian aircrafts. Foreigners are snapping up aircrafts as well, but demand for semiconductors and industrial supplies have increased materially. A growing trade deficit in U.S. should discourage demand for dollars.

In Canada, there is a net trade deficit but the gap narrowed from -2.0B to -0.9B. Exports jumped 3.5 percent while imports contracted by 0.1 percent. Canada shipped a greater amount of cars, industrial materials and machinery to European Nations. Exports to the U.S. was essentially flat and exports of energy actually decreased. The increase in demand for vehicles made in Canada in September is confirmed by the 1.2 percent increase in new motor vehicle sales. We want to point out that the details of Canada's trade report indicates how decreasingly important the U.S. is becoming to the rest of the world.

Comments (2)

Stephan Smith

November 13, 2009 at 11:55 AM ET

So that means that the USD will get even weaker against other currencies or just CAD?

klien

November 13, 2009 at 12:08 PM ET

The trade balance story today is most pertinent to USD/CAD but we are long term dollar bears:

Why the Dollar Could Fall Another 5-7 Percent

http://www.fx360.com/commentary/kathy/2291/why-the-dollar-could-fall-another-5-7-percent.aspx

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.