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FOREX Watch: North American pair declines on US trade balance

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FOREX Watch: North American pair declines on US trade balance

The US dollar faced a setback Wednesday after official data from the US Department of Commerce pointed to a bigger trade deficit in July. The balance of imports and exports of all goods and services was -$39.15 billion in July, worse than the previous month’s balance of -$34.54 billion, and below expectations for $38.70 billion. The US imported a total of $228.6 billion worth of goods and services in July, and exported a total of $189.4 billion. Year-on-year, the trade deficit decreased $4.3 billion, with exports growing at a faster rate than imports.

The North American pair tumbled to a low of 1.0477 in the New York day before consolidating at 1.0494, a loss of more than 0.4 percent. The pair was testing the mid-105s the day after Labor Day on upbeat manufacturing activity. The pair has gained more than 1.4 percent over the past month, as the US dollar continues to enjoy broadening support amid growing fears of a US-led military confrontation with Syria. The US dollar held its place against a basket of its major competitors, after gaining more than 1.2 percent over the previous five days.

The technical indicators point to a slightly bearish outlook for USDCAD in the immediate term, although the pair is expected to point higher over the long-run. The charts show immediate supports in the low-to-mid 1.05 area, with the first waves of resistance situated at 1.0419 and 1.0546.

The Canadian dollar improved despite weaker-than-expected trade data. Like the United States, Canada registered a bigger than expected trade deficit in July, largely due to delayed export demand. Canada’s trade balance in July was -$0.93 billion. The Bank of Canada’s decision to hold interest rates steady also contributed to the loonie’s firmer pace Wednesday. The central bank expects the economy to rebound in 2014, which could make way for potentially higher interest rates over the same time period.

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