U.S. Trade Deficit: Oil Demand Falls Sharply

U.S. Trade Balance (Nov) Actual -40.4B, Expected -51.4B, Previous -56.7B (Revised from -57.2B)

Release Explanation: A country's exports minus its imports; the largest component of a country's balance of payments. An increase or decrease in the Trade Balance will help determine the future economic outlook and growth numbers in a region. It can impact all aspects of an economy as it is the way that region balances its books.

This is a standalone valuation of the reliance, or not, of imported Goods compared to what is being sent abroad. A currency will be greatly impacted by this report as the costs of buying Imports, or selling Exports, is reliant upon a currency's valuation to a degree. A country that Exports more than it Imports (China for example) will benefit from a weaker currency; its Exports are cheaper for foreigners to buy, and vice verse.

Trade Desk Thoughts: The U.S. trade deficit contracted by the most in 12 years during November, as the fall in crude prices along with a worsening recession constrained demand for a range of foreign products. The trade deficit declined by 28.7% to $40.44 billion from October's downwardly revised $56.69 billion, the Commerce Department said today. Originally, the October deficit was estimated at $57.19 billion.

The $40.44 billion gap was the smallest since $40.0 billion in November 2003. The 28.7% drop was the largest since 34.9% in October 1996.

"The numbers are a clear reflection the economy is slowing rapidly," said Matthew Carniol, chief currency strategist at TheLFB-forex.com. "One needs look no further than the demand for oil in order to appreciate just how severe the contraction is."

In volume terms, the amount of oil imported declined 19.3% to 261.60 million barrels in November from 324.19 million in October.

The U.S. deficit with China shrank to its lowest in five months, to $23.06 billion from $27.96 billion during October. The June 2008 deficit was $21.4 billion.

Imports of capital goods such as computers and engines tumbled $2.21 billion. Auto and related parts imports dropped $1.18 billion. Purchases of foreign-made consumer goods, like televisions and diamonds and toys, plunged by $3.79 billion.

The deficit with Japan dropped 17.8% to $4.97 billion from $6.05 billion. The trade gap with the euro area declined 42.9% to $4.40 billion from $7.71 billion. The deficit with Canada fell 43% to $3.34 billion from $5.86 billion. The U.S. gap with Mexico fell 26.6% to $3.52 billion from $4.80 billion.

Forex Technical Reaction: The dollar has been gaining broadly overnight as S&P futures declined, with the greenback recently at or near session highs against the euro, pound and Australian dollar.

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