Trade BalanceEconomics and Currency
Leading/Coincident/Lagging: Coincident Economic Indicator
Summary: A nation’s “Exports” are the goods sold to foreign nations. A nation’s “Imports” are the goods bought from foreign nations. A nation’s Exports minus its Imports equals its “Trade Balance”.
If the Trade Balance is positive, exports are earning the nation more capital than imports. Wealth flows into the nation from sales. If the Trade Balance is negative, imports cost the nation more capital than exports. Wealth flows out of the nation from purchases.
A positive or rising trade balance is associated with an increase in the value of a currency. Foreigners must buy the currency to import the domestically manufactured goods and sell their own domestic currency. A negative or falling trade balance is associated with a decrease in the value of currency. Domestic individuals are buying foreign goods and services, which requires selling the domestic currency to buy foreign currencies which originated the goods or services. This hurts the domestic currency’s value and increases the foreign currency’s value.
|Trade Balance (TB)||Change Versus Previous|
|TB Rises, Currency Increases in Value||TB Accelerating, Value rise accelerates.|
|TB Rises, Currency Decreases in Value||TB Slows, Value increase slows.|
|If TB is too High, higher chance of…||Deflation possible.|
|If TB is too Low, Economy increases chance of…||Hyperinflation Risk.|
|All information is general, not absolute. Invest using total economy, not one indicator.|
Impact on Local Currency: Foreign investors in a nation will be attracted to investments associated with the specific exports driving an increase in the trade balance. They are more likely to buy the currency in the future if trade balance exceeds expectations. While watching associated inflation levels. Foreign investors in a nation may be scared away from economies with trade balances falling short of expectations, which hints at falling production levels. They may even sell the currency.
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- Performance Indexes of Major Economies
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- Performance of Major
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- Performance Indexes of U.S Economy
- Economically Correlated U.S Dollar Projections
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- Market Wide Earnings Versus Valuations
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- Occasional: Firm Fundamental Strength Report
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