Trade Day for UK, US and Canada

The UK reported a smaller than expected trade deficit and, although likely distorted by weather-related effects, it helped sterling recover from early weakness and now is up more than a cent off the session lows made in Asia. We see initial resistance near the high set in Europe yesterday near $1.5465, though yesterday's Asian high was set nearer $1.5485.

Canada also reported a larger than expected trade surplus. The C$1.4 bln surplus is the largest since Oct 08 and was roughly twice what the consensus expected. Exports were up 2.8% and this could help ease fears that a strong currency would undermine exports.

The Canadian dollar has been appreciating against the US dollar since the end of Q1 09. The US dollar has fallen about 23% against the Canadian dollar since over the past year. Its trade surplus with the US rose to C$4.4 bln in Feb from C$4.1 bln in Jan.

The US dollar is consolidating its recent losses against the Loonie between CAD0.9980 and CAD1.0080. Note that typically when the US dollar has a softer profile, the Canadian dollar tends to under-perform European currencies.

Breaking the today's pattern of better than expected trade reports, the US reported a slightly wider deficit in Feb. The disappointment was largely offset by the smaller deficit in the revision to the Jan data.

Exports rose 0.2%. Engines and semiconductors were particularly strong. But note the engines and semiconductors are inputs into other goods and often times, especially from NAFTA partners, the US may then import the finished good, which always has a higher value than the components. This means that boosting US exports may still result in a larger trade deficit if this pattern were to be extended.

Imports are about 27% larger than US exports. That means simply to prevent deterioration of the trade balance, exports have to rise roughly a quarter more than imports. Imports rose 1.7% as household consumption increased. Televisions, toys, pharmaceuticals and clothing imports rose. Imports are at their highest level since Oct 08.

The data did not seem to impact the dollar, which in any event is sporting a softer profile in the North American morning. The euro and sterling made new session highs, while the dollar came down to test the JPY92.60 area, and the Asian low was just below there. Momentum appears to be stalling however, threatening a further consolidation.