Dollar softens in Asian trade as US trade deficit widens

The dollar weakened against the euro in Asia Wednesday after data showed the US trade deficit ballooned to a six-year high in March.

Analysts said the yawning trade gap had raised questions about the outlook for an increase in US interest rates, a move that would be supportive of the greenback.

The euro bought $1.1232 in Singapore afternoon trade, up from $1.1185 in New York late Tuesday.

The dollar was changing hands at 119.90 yen from 119.87 and the euro single currency was at 134.57 yen from 134.08.

Trading however was subdued with Japanese financial markets closed for a public holiday.

Howie Lee, an investment analyst with Phillip Futures in Singapore, said the dollar’s softening was “expected” after US Commerce Department figures Tuesday showed the US trade deficit swelled more than 40 percent to $51.4 billion in March. It was the largest gap since October 2008.

“Combined with the low prices of oil, the trade deficit numbers have given rise to a pessimistic US market, whose fiscal hands will be tied,” said Lee.

He added that the deficit numbers “could well play a big role” in the US central bank’s decision on the timing of its plans to raise ultra-low interest rates.

DBS Bank said in market commentary the US trade deficit was “worse than anticipated” and could mean that the initial estimates of a 0.2 percent growth in US gross domestic product (GDP) in the first quarter could actually be weaker.

“Odds are, GDP growth will fall by another 50-70 basis points from the initial estimate of 0.2 percent (expansion), leaving growth of -0.3 percent to -0.5 percent when all is said and done,” the bank said.

Analysts said the market was waiting for Friday’s US jobs report for April to look for further signs about the health of the US economy, a key engine for global growth.

The dollar was mostly lower against other Asia-Pacific currencies.

It fell to 1,080.72 South Korean won from 1,082.41 on Tuesday, to Tw$30.63 from Tw$30.699, to Sg$1.3283 from Sg$1.3361, to 44.5200 Philippine pesos from 44.5870 and to 33.2730 Thai baht from 33.35.

The dollar advanced to 63.5925 Indian rupees from 63.5150 and to 13,037 Indonesian rupiah from 13,025.

The Australian dollar climbed to 79.61 US cents from 78.73 US cents after the country’s central bank cut its benchmark interest rate to a record low of 2.0 percent Tuesday to try to reinvigorate the struggling economy.

The Chinese yuan fell to 19.3237 yen from 19.3596.