Trade numbers for September have been released today. The Commerce Department said that the trade deficit jumped 18.2 percent in September to $36.5 billion. That was the largest deficit since January and more than the $31.7 billion imbalance economists had expected. So far this year, the trade deficit is running at an annual rate of $366 billion, about half of last year’s $695.9 billion deficit. But this trend is not expected to continue. The deficit with China, which had been falling, jumped 9.2 percent to $22.1 billion in September, the highest imbalance in 10 months. For the year, the deficit with China is down 15.9 percent although the gap is still the largest the U.S. has with any country.

Response of currencies to these figures shows that trade balance doesn’t rank as the most important of economic data. It gets considerable attention today, but this is mostly due to president’s visit to Far East, where trade, and the imbalance, will certainly be discussed. Moves of the Dollar pairs have not been huge by any standards. For example, EUR-USD has had a range of about 60 pips so far today. Damaging trade balance report and growth in Eurozone, it’s emergence from recession, as announced today, should have far bigger impact on this pair. For now, nothing extraordinary is happening. But we still have few hours of trading left, so who knows.

Importance of trade figures comes and goes as far as currency trading is concerned. People claim it is not very accurate and doesn’t reflect reality of international trade. For example, in case of US this data will always be skewed due to oil exports. This alone is big. Another thing, while mutual trade with China looks very damaging, not everything is covered. How do services or retail fit into these calculations? Wall Mart has large exposure to China, and growing, yet is not really exporting anything there. Same with a lot of other companies. Also, how do American multinationals fit into that data? Products that are manufactured abroad and sold there?

Early in the week NZD received attention on these pages. It created gaps in early trading, and I have trying to close them., with less than solid results. Most recently discussed cross was NZD-JPY, which I sold, as explained in British credit rating at risk. This pair finally experienced a move in my direction couple of days ago, but it has been very choppy and without conviction. I just closed it for a few pips gain, way short of objective. It simply doesn’t want to go now, so why fight it?

Only one of the Kiwi crosses that I had interest in managed to close the gap. That was AUD-NZD, which accomplished it yesterday. My trade there made 66 pips. This chart is also from Thursday and doesn’t include today’s price development.  Both NZD-USD and EUR-NZD failed to make any decisive moves. No trades  in those crosses. Depending on what happens, I might return to this subject next week, but hopefully more interesting set ups will be created. Have a great weekend!

Mike K.