U.S. trade deficit likely to have narrowed in April, net exports to be neutral to GDP growth in near term

The U.S. trade data for April is set to be released tomorrow. According to a Wells Fargo in a research report, the trade deficit is likely to have narrowed in the month. The deficit had narrowed to USD 49 billion in March. The drop followed a nine-year high of USD 57.7 billion in February. A USD 4.2 billion rise in exports of goods and services, along with a USD 4.6 billion fall in imports, led March’s significant fall in the trade deficit. Two transient factors are expected to have played an outsized role in the sharp fall, namely a jump in volatile aircraft orders and port closures because of the timing of the Chinese New Year.

Real net exports had underpinned the first quarter GDP growth. Goods exports had risen at a strong rate in both February and March which implies that exports are likely to add to GDP growth in the second quarter, stated Wells Fargo. In the meantime, imports had dropped 1.6 percent in March and are likely to have a restricted effect on the second quarter GDP. Trade deficit is expected to have narrowed to USD 48.6 billion in April, stated Wells Fargo.

“Looking ahead, global economic growth should continue to boost exports, while solid domestic demand will pull in imports. Overall, we expect real net exports to be neutral to GDP growth in the near term”, added Wells Fargo.

At 22:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at 50.1275. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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