Trade Balance

The Trade Balance Report compares the total value of imports and the total value of exports for the reporting period. A negative value indicates that more goods were imported than were exported (trade deficit) – conversely, a positive trade balance means that exports exceeded imports (trade surplus).

The Trade Balance Report is considered to have a negligible effect on the Bond and Stock markets, however, there can be ramifications for the FX market. In the case of a trade surplus or a decreasing trade deficit from the previous month, it naturally follows that countries importing goods must convert their currency to the domestic currency of the exporting country. This results in an increased demand for the domestic currency thereby increasing its value.

In the case of a trade deficit or a trend towards a decreasing trade surplus, the importing country must convert their currency to the foreign currency of the country from which they are buying goods. This leads to an increased supply of the domestic currency on the forex markets which could cause the domestic currency to lose value against other currencies.

Effect on the Markets

FX Market

The Trade Balance Report can provide insight into the demand for the currency on the global markets. If the balance of trade shows a surplus or declining deficit, then there may be an increased demand for the currency – if the report shows a growing deficit, then the increased supply of the currency could lead to a devaluation against other currencies.

Bond Market

Even though the Trade Balance Report historically has little impact on the Bond Markets, an increase in the Trade Balance Report could suggest that the economy is growing. For bond traders, any growth that could lead to an interest rate hike is seen as a negative indicator.

Stock Market

The Trade Balance Report typically causes little change in the outlook of stock market watchers, but a positive Trade Balance Report is generally seen as a healthy economic sign. Therefore a trade surplus may cause a slight uptake in the equities market.

Market Relevance

Low for Bonds and Stocks – Moderate for FX

When Published

Beginning of each month

Volatility

Low