Dollar gains as trade gap shrinks to four-year low

The dollar (NYBOT:DXH14) gained after a report showed the U.S. trade deficit shrank more than forecast in November as oil imports dropped to the lowest level in three years, boosting the allure of American assets.

The franc fell to a two-month low against the euro (FOREX:EURCHF) as a rally in Europe’s higher-yielding government bonds reduced demand for the relative safety of Switzerland’s currency. The yen weakened, following its biggest gain versus the dollar in almost 11 weeks yesterday, as a gauge of Japan’s monetary stimulus increased. Australia’s dollar slid against all 16 major peers as the total value of trade between the nation and China fell for the first time in five months.

“The market is reacting to this much-better-than-expected U.S. trade number,” said Masafumi Takada, a director at BNP Paribas SA in New York. “The trade number is usually not a key driver of the market these days, so the U.S. dollar rally should be muted soon.”

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.1% to 1,025.14 as of 9:31 a.m. in New York after declining 0.2% yesterday, the most in a week.

The franc dropped 0.4% to 1.2366 per euro, the biggest decline since Dec. 18. It earlier slid to 1.2373, the weakest since Oct. 15. The yen declined 0.3% to 104.51 per dollar after adding 0.6% yesterday, the biggest gain since Oct. 23. The euro was little changed at $1.3632.

Aussie Weakens

Australia’s dollar (FOREX:AUDUSD) weakened as government data showed the nation’s total trade with China fell to A$13.6 billion ($12.1 billion) in November, the first decline since a 6.5% drop in June.

“Speculators continue to punish the Aussie dollar,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “It provides us a reminder that 90 U.S. cents look as though it is hard work near term. On the downside, it’s fair game anywhere to about 88.50.”

The Aussie dropped 0.6% to 89.13 U.S. cents after sliding to 88.21 cents on Dec. 18, the weakest level since August 2010.

The won dropped as a rivalry with Japanese companies intensified in the semiconductor and machinery industry segments, South Korea’s Ministry of Trade, Industry and Energy said. The currency declined 0.3% to close at 1,068.38 per dollar in Seoul after sliding to 1,070.72, the weakest level since Nov. 13.

The real climbed the most in two weeks after Moody’s Investors Service said Brazil’s economic growth would have to be much lower than 2% before the credit-rating outlook is lowered again. The currency rose 0.8% to 2.3615 per dollar after adding 1%, the most since Dec. 23.

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