The trade defi-what?
Global currency traders have been careening between the cyclical and the structural this past week. On July 5 the broad dollar reached its highest point since October 2004; one week later it's fallen 3%. Why the big change? Oh, folks just remembered that 6.4% of GDP current account deficit.
The dollar fell, heading for its biggest two-day decline against the euro since January 2004, on speculation a government report tomorrow will show no shrinkage in the U.S. trade deficit.According to Bloomberg, the consensus forecast for the May trade deficit is $57.5bn. That would top April's deficit by $0.5bn and turn in the fourth largest tally of all time.
. . . figures on July 8 from the Commodity Futures Trading Commission showed wagers on the dollar's advance rose to the most since December 1999, said Paul Mackel, a currency strategist at ABN Amro Holding NV in London.
``People had got incredibly long of the dollar,'' said Mackel. ``The fact that we have the trade data tomorrow may lead to an acceleration'' in selling, he said. A long position is a bet on a currency's appreciation.
Calculated Risk says that oil import prices fell in May compared to April which should take a little off the top. However, imports from China are expected to have surged yet further thanks to China's massive $9.0bn overall trade surplus in May -- not to mention its still larger $9.7bn surplus in June (the whole of 2004 was a "mere" $32bn). Since the US is China's market of first resort, expect to see the US monthly goods imports from China pushing $20bn.
The free traders among us have already decided to send the textile and apparel sectors to China, but they've more recently chosen to ship out computer and electronic products, machinery, electrical equipment and appliances, and furniture and related products as well. But who needs to sell things, after all, when you can just sell debt instead? Although, of course, in April of this year foreigners weren't so keen on those exports, either . . .