Trade Deficit Increases -- And So Does Risk Appetite on the FX Market

The trade deficit increased to its widest level since November 2008, and that is having the effect of helping risk appetite on the FX market. Why? Because a widening trade deficit indicates that Americans are getting ready to spend money. And when consumers start spending, the economy picks up. GFT's Kathy Lien looks at the trade deficit in FX360:

The details of the report showed a pickup in external and internal demand that had nothing to do with commodity prices.  Instead, Americans imported more than they exported, causing the trade deficit to balloon.  Demand was particularly strong for cars and pharmaceuticals. 

The result is that the U.S. dollar is weakening in currency trading. Forex traders are looking for higher yielding currencies, and send support to the euro and the Canadian dollar. Indeed, the Canadian dollar has reached its highest level in a month against the U.S. dollar.

Commodities are also higher, with gold and oil prices gaining as the U.S. dollar weakens in forex trading.