Despite of Growing Trade Balance Loonie dips down

Friday, March 12, 2010

The U.S Dollar fell against most of its major counterparts after a report on U.S. trade indicated the global economic recovery may be slowing, reducing demand for higher-yielding assets.

The U.S trade deficit narrowed unexpectedly by 6.6% in January, as demand for foreign oil and automobiles dropped. The deficit fell to $37.3 billion from a revised $39.9 billion in December as Americans imported the fewest barrels of crude oil in a decade. Exports fell 0.3%, the first decline since April, on fewer shipments of commercial aircraft and autos. In addition, the U.S. trade deficit with China narrowed to $18.30 billion compared with $20.57 billion in the same month last year.

Across the border Canada’s trade balance grew more than expected in January to 0.8B, as higher prices for commodities such as gold boosted exports, while imports fell. According to the figures released by Stats Canada January's surplus was the largest since March 2009. The pace of growth in exports slowed, as volumes fell 0.3%, on the back of smaller sales of autos as well as machinery and equipment. The Canadian dollar has risen about 25% against its U.S. counterpart over the past 12 months, making the country’s goods more expensive abroad leading to its decline in exports. However, this was offset by a 0.8% jump in prices, led by industrial goods and materials including precious metals, aluminum and alloys.

Despite beating market expectations, the Canadian Dollar fell against 14 of its 16 major currency counterparts in the forex online market, as the event was overshadowed by the unforeseen 6.6% fall in the U.S trade deficit. The Loonie weakened as much as 0.7% to C$1.0322 per U.S. dollar from C$1.0292, prior to announcement of the trade balances.

At noon today (1200GMT), Statistics Canada will release the unemployment rate for February. Last month, the number of employed Canadian’s increased by 43,000, more than three times market expectations – pulling the unemployment rate down to 8.3%, its lowest level since May of last year. The unemployment rate is expected to remain unchanged at 8.3%, as the market predicts that number of employed people will rise by 17,500, supplying a strong week ending for the Canadian dollar.

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