It’s the 1980s all over again for forex desks

Widening of US trade deficit may prompt reaction from president and spur a dollar sell-off

Currency traders accustomed to analysing the Fed’s dot plot and monthly US jobs figures to gauge the direction of the dollar are having to learn, or in some cases re-learn, a forgotten skill: how to scrutinise trade data.

It’s been decades since investors gave significant thought to the data amid easing trade tensions. What’s more, the flows represent a drop in the ocean for a currency market where about $5 trillion (Dh18.3 trillion) exchanges hands every day.

Yet now, with the dollar near a 14-year high and Donald Trump accusing countries including China and Japan of keeping their currencies weak to gain trade advantages, the risk is any widening in the US trade deficit may prompt a reaction from the president and spur a dollar sell-off. Trump seemingly held his tongue on Friday after China’s monthly trade surplus with the US slipped to a seven-month low of $21.4 billion, according to data compiled by Bloomberg.

“The fact that the president is planning to do so much on the trade front which could potentially alter the global trading landscape permanently, forces market participants to focus on whatever trade data they can find,” said Brad Bechtel, a currency strategist at Jefferies Group LLC in New York. “Although often a bit dated, trade data will have far more relevance going forward.”

Trump’s summit with Japanese Prime Minister Shinzo Abe was drawing the attention of dollar-yen traders like no such meeting since trade tensions preoccupied the nations’ leaders in the 1980s and 1990s.

So what data should currency traders follow?

Focus on statistics

Apart from the US Census Bureau’s monthly release (due March 7), investors should pay attention to the statistics from these seven nations: China, Japan (due February 20), South Korea (due March 1), Germany (March 10), Taiwan (due March 7), and Switzerland (due February 21). All were placed on the Treasury Department’s monitoring list last year when it evaluated the foreign-exchange policies of trading partners. Treasury cited instances of unusually large bilateral trade surpluses in the first four countries, and singled out Taiwan and Switzerland for engaging in interventions that only serve to weaken their currencies.

Chinese policymakers are already surveying domestic companies to evaluate the potential impact should the US label the nation a currency manipulator and impose punitive tariffs, according to people familiar with the issue.

If you’re uninspired by the mundane official releases and frustrated by their backwardlooking nature, Sebastien Galy, a strategist at Deutsche Bank AG, has a different recommendation: freight-rail traffic.

Incidentally, that’s the indicator Warren Buffett said he’d monitor if he was stuck on a desert island for a month and only had access to one statistic.

The Association of American Railroads has weekly data for the US, Canada, and Mexico, the kind of high-frequency information that a currency trader could really sink his teeth into.