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Balance of Trade (BOT) is one of the most important market indicators. In essence, it is a difference between the goods that are exported and those that are imported into the territory of a particular country. There are specific types of this indicator depending on whether nation’s exports or imports prevail.
1. Balance of Trade: What Makes It So Vital
2. Trade Balance Structure
3. Impact of Visible Trade of Balance on Currency Exchange Rate
Balance of Trade: What Makes It So Vital
The way the money that has been made for sold or purchased goods moves has a direct impact on both the exchange rate of the currencies and other macroeconomic indicators.
Depending on the ratio of the components, passive and active balances are distinguished.
- Active balance is characterized by a surplus between the value of exports and imports. In other words, more goods are exported and sold overseas than imported. Thus, more money is made rather than spent. This is a trade balance surplus.
- Passive trade balance is notable for import prevailing over export, meaning that the balance will be negative.
Trade Balance Structure
Trade balance includes export and import indicators based on the following categories:
- food products;
- commodity products;
- industrial products;
- consumer goods;
- automotive products;
- plant and equipment;
- other goods.
When examining the trade balance, the analysts track down the dynamics in terms of the overall balance deficit, export of vehicles, and petrol sales.
Impact of Visible Trade of Balance on Currency Exchange Rate
It is a known fact that the increase in the price volatility on the currency market in response to the release of macroeconomic statistics happens when the actual value of the indicator is different from the anticipated one. When it comes to the trade balance, the positive balance, its increase and a decrease of the negative balance can promote the strengthening of the currency.
In terms of the exchange rate, trade balance is also a vital indicator. The prevailing exports are a prerequisite for the GDP growth and have a positive impact on the national currency. In contrast, the rising level of imports can signal the increase in stocks and sales dip in the economy which serves as a push factor.
With that said, the spike in volatility may be very moderate when the statistics reports are being released. This is linked to the delayed nature of this indicator since the data is published for the month before last. Aside from that, the analysis of the trade balance is done not only in terms of the overall value of the balance but also the dynamics of its separate components.
The statistics of the trade balance is typically released in the second part of the month, mainly during the third week.
What to know:
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