The US trade deficit in November was considerably smaller than expected and it will encourage economists to revise up Q4 GDP forecasts.
The headline deficit fell almost 13% to $34.3 bln. Exports rose by less than 1%, but still stand at a new record high. Imports fell 1.4%, partly reflecting a decline in oil imports, which fell to a 3-year low. The US oil deficit stands at about $15.2 bln, which is the smallest since May 2009.
When adjusting for prices, the real deficit, which is important for GDP calculations fell to $44.1 bln, the smallest in five months and is below the Q3 average.
The dollar reacted favorable to the news; ticking back toward the session highs against the yen, with the euro slipping a tad.
The greenback moved back above CAD1.07 on the divergent trade performance. The better than expected US figures contrasted with Canada's trade deterioration. The C$940 merchandise trade deficit was nine times larger than the Bloomberg consensus forecast. Moreover, the Oct figure was revised sharply to show a deficit of C$908 mln rather than a C$75 mln surplus. Exports were unchanged, though in volume terms they slipped by 0.7%, while imports increased slightly, though in volume terms were unchanged. This shows some deterioration in the terms of trade. The trade surplus with the US narrowed to C$2.8 bln from C$3.1 bln.
The US dollar saw a high near CAD1.0740 before Christmas and this is the immediate target. Longer term, we expect additional weakness in the Canadian dollar. Our "trade of the year" is a NAFTA trade--long Mexican peso short Canadian dollars.
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