U.S. trade and currency account deficits likely to continue to expand, says Scotiabank

U.S. merchandise exports have recorded their greatest annual gains in half a decade, underpinned by a significant rebound in commodity exports and renewed strength in manufacturers. Increased prices of oil and minerals have stimulated growth in mining, petroleum and coal exports to a 45 percent average in the year to July. In 2016, these exports had contracted at a yearly rate of 22 percent in the same period. In all, total goods exports have expanded 7 percent year-on-year as of July, exceeding the 4.1 percent year-on-year gains in the same period in services exports.

Still, persistent strength in the USD, which continues to be near post-recession highs, underpinned by capital inflows in response to the Fed’s attempts to normalize monetary policy, should keep merchandise imports growing at more rapid pace than exports, noted Scotiabank in a research report.

While the surplus on services trade has continued to be comparatively constant since 2014, a recent 8 percent year-on-year rise in the goods trade deficit has contributed to a slight widening of the nation’s current account deficit.

“The US’s trade and current account deficits will likely continue to expand with savings rates at pre-recessions lows and the US Administration pushing to provide additional fiscal stimulus through infrastructure spending or tax cuts—thereby undermining one White House priority while delivering on another”, added Scotiabank.

At 17:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at 45.6391. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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