Market importance: High importance.
Meaning: The monthly report of the U.S. exports and imports of goods and services.
Release time: The second week of each month, at 8:30 a.m. Eastern Time.
Coverage period: The previous month.
Revision: Monthly revisions, and annual revisions usually in June.
Trade balance reflects the trade situation between countries, and is an important indicator for judging the macroeconomic operation. It is also one of the important indicators for foreign exchange trading fundamental analysis.
If a country’s total imports exceed its exports, it will have a "trade deficit"; if exports exceed imports, it is called a "trade surplus"; if exports equal imports, it is called a "trade balance". The U.S. trade figures are released once a month, at the end of each month for the previous month.
If an economy often has a trade deficit, national income will flow out of the country, weakening the country’s economic performance. If the government wants to improve this situation, it must devalue the country’s currency, because the currency devaluation, that is, the export price is lowered, can improve the competitiveness of export products.
Therefore, when the country’s trade deficit widens, it will be bearish on the country’s currency, causing the country’s currency to fall; on the contrary, when there is a trade surplus, it will be bullish on the currency. The international trade situation is a very important factor affecting the exchange rate.
The trade friction between Japan and the United States illustrates this point. The U.S. trade deficit with Japan has been increasing year after year, causing the U.S. trade balance to deteriorate. To limit Japan’s trade surplus with the U.S., the U.S. government pressured Japan to appreciate the yen; while the Japanese government tried every means to prevent the yen from appreciating too quickly, to maintain a more favorable trade situation.
Starting from the impact of an economy’s trade situation on the exchange rate, we can see that the international balance of payments directly affects the exchange rate of a country.
If a country’s international balance of payments has a surplus, the demand for the country’s currency will increase, and the foreign exchange inflow to the country will increase, resulting in the country’s currency exchange rate rising.
On the contrary, if a country’s international balance of payments has a deficit, the demand for the country’s currency will decrease, and the foreign exchange inflow to the country will decrease, resulting in the country’s currency exchange rate falling, and the country’s currency devaluation.
Specifically, in the international balance of payments items, the trade items have the greatest impact on the exchange rate changes, in addition to the capital items. The trade balance surplus or deficit directly affects the currency exchange rate rise or fall.
For example, one of the important reasons for the fall of the U.S. dollar exchange rate is the increasing trade deficit of the United States. On the contrary, Japan has a huge trade surplus, and its international balance of payments situation is better, and the yen’s foreign exchange rate shows a rising trend.
Similarly, the capital item surplus or deficit directly affects the currency exchange rate rise or fall. When a country’s capital item has a large deficit, and the other items of the international balance of payments are not enough to make up for it, the country’s international balance of payments will have a deficit, which will cause the country’s currency exchange rate to fall. On the contrary, it will cause the country’s currency exchange rate to rise.