Dollar Gains as Trade Gap Shrinks to Four-Year Low

The dollar gained after a report showed the U.S. trade deficit shrank more than forecast in November as oil imports dropped to the lowest level in three years, boosting the allure of American assets.

The greenback trimmed advances after Federal Reserve Bank of Boston President Eric Rosengren said the pace of economic recovery has been too slow. The franc fell to a more than two-month low against the euro as a rally in Europe’s higher-yielding government bonds reduced demand for the relative safety of Switzerland’s currency. The Canadian dollar dropped to the lowest since May 2010 as that nation’s trade deficit swelled.

“A lot of it is lower energy imports, signaling that the big trade deficit we’ve been seeing in the past few years will be shrinking gradually, which is dollar positive,” Charles St-Arnaud, Canadian economist and foreign-exchange strategist at Nomura Securities International in New York, said in a phone interview. “Stronger U.S. growth numbers should continue to support the dollar.”

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.2 percent to 1,025.55 as of 1:53 p.m. in New York after declining 0.2 percent yesterday, the first drop in a week.

The franc dropped 0.4 percent to 1.2369 per euro, the biggest decline since Dec. 18. It earlier slid to 1.2374, the weakest since Oct. 15. The yen declined 0.3 percent to 104.50 per dollar after adding 0.6 percent yesterday, the biggest gain since Oct. 23. The euro was little changed at $1.3619.

Loonie Plunges

The Canadian dollar sank to a three-year low after a previously reported trade surplus in October was revised to a deficit, meaning Canada has had 23 consecutive trade gaps through November. A purchasing-manager index unexpectedly fell.

“It just underlines the fact that the Bank of Canada is mindful of wanting to encourage a degree of competitiveness via the currency,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, by phone from London. “You look at the two trade reports, the U.S. and Canada, and one disappointed and the other was a positive surprise.”

The loonie, as the Canadian dollar is known for the image of the water fowl on the C$1 coin, depreciated 0.9 percent to C$1.0753 per U.S. dollar. The currency reached C$1.0762, the weakest since May 2010.

Peso, Won

The Mexican peso gained against all major peers after the Fed’s Rosengren called for a gradual trimming of the monetary stimulus that has helped bolster the Latin American country’s assets.

The peso added 0.4 percent to 13.0438 per dollar for its third day of gains.

The won dropped as a rivalry with Japanese companies intensified in the semiconductor and machinery industry segments, South Korea’s Ministry of Trade, Industry and Energy said.

The South Korean currency declined 0.3 percent to close at 1,068.38 per dollar in Seoul after sliding to 1,070.72, the weakest since Nov. 13.

The real climbed the most in two weeks after Moody’s Investors Service said Brazil’s economic growth would have to be much lower than 2 percent before the credit-rating outlook is lowered again. The currency rose 0.1 percent to 2.3765 per dollar after earlier adding 1 percent, the most since Dec. 30.

Rosengren Speech

Rosengren, the only dissenter against a Fed decision to taper bond buying, said a premature tightening of monetary policy will delay the return to “more normal economic conditions” in the world’s biggest economy.

The U.S. economy is “far from where we need to be” and “the Federal Reserve continues to miss both elements of its dual mandate from Congress -– inflation and employment -– by fairly large margins,” Rosengren said.

“His comments were seen to be quite dovish,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a phone interview. “It’s a relatively quiet day, some traders may be using that as an excuse to flatten positions before meaningful economic data tomorrow and on Friday.”

Companies boosted payrolls by 200,000 workers in December, according to the median estimate of economists in a Bloomberg survey before the ADP Research Institute releases the report tomorrow. The Labor Department releases payrolls data on Jan. 10.

Deficit Shrinks

The dollar rallied today as the U.S. trade gap narrowed 12.9 percent to $34.3 billion, smaller than projected by any economist surveyed by Bloomberg and the least since October 2009, figures from the Commerce Department showed today in Washington. The gain in sales to overseas customers was led by aircraft and chemicals.

Fed policy makers decided last month to taper monthly buying to $75 billion from $85 billion. They will probably reduce purchases in $10 billion increments over the next seven meetings before ending them in December, according to the median forecast in a Bloomberg News survey Dec. 19.

The franc dropped against all except two of its 16 major counterparts as Spanish and Italian government bonds rallied amid signs the region’s economy is recovering, boosting demand for debt with higher yields.

‘Growing Confidence’

“The weaker franc and weaker yen are a function of investors buying riskier assets,” said Neil Jones, head of European hedge-fund sales at Mizuho Bank Ltd. in London. There is “growing confidence in the world economy,” he said.

Ireland’s 10-year bond yields fell to the lowest since January 2006 as the nation sought to raise at least 3 billion euros ($4.1 billion) through a 10-year sale of bonds via banks, its first since exiting its international bailout program last month.

The franc has dropped 1.1 percent this year, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro dropped 0.2 percent and the dollar gained 0.8 percent.

Deutsche Bank AG’s three-month implied volatility index for major nine currency pairs dropped 14 basis points, or 0.14 percentage point, to 7.68 percent, the lowest since Nov. 20. The index slid 70 basis points yesterday.

(Corrects dates to Jan. 10 in 17th paragraph, and to Dec. 19 in 19th paragraph.)
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