Investors flocked to the dollar on Thursday as Spain received a ratings downgrade, violence surged in Libya and Saudi Arabia, and China reported a rare trade deficit.
Global turbulence sent investors piling into the safe-haven currency, sending it higher against the euro, yen, Swiss franc and the pound.
“The dollar found a reprieve vs. the euro, trading to fresh weekly lows, after Moody’s downgraded Spanish debt,” said PNC analysts.
The European single currency dropped to $1.3794 from $1.3906 in New York late Wednesday.
“This week’s downgrades of Greece and now Spain have renewed sovereign debt concerns in the currency market that have been pushed aside since the end of last year,” the PNC analysts said.
News from other continents did little to ease sentiment.
China said it had returned to a trade deficit in February for the first time in nearly a year, as the world’s number two economy tries to wean itself off reliance on exports.
US officials said the momentum in the Libyan conflict was shifting in favor of Moamer Kadhafi, whose forces are “robustly equipped” with Russian weapons.
Protests in Saudi Arabia saw police shoot and wound three Shiite protesters in the oil-rich Eastern Province while trying to disperse a protest calling for the release of prisoners.
The dollar rose to 82.91 yen from 82.70 yen on Wednesday.
Sterling slipped after the Bank of England held interest rates unchanged.
The pound slid to $1.6054 from $1.6198 late on Wednesday.
The dollar stood at 0.9317 Swiss francs (0.9295).
China records surprise trade deficit
China reported a surprise trade deficit in February as surging prices for oil and other commodities pushed up its import bill.
February export growth plunged to 2.4 per cent as businesses were idled for the weeklong Lunar New Year holiday while imports of higher-priced oil and other goods rose 19.4 per cent for a deficit of $US7.3 billion ($A7.24 billion), data showed Thursday.
The February slump offset January’s 38 per cent jump in exports as suppliers rushed to fill orders before the Lunar New Year shutdown. Many analysts group together January and February trade data to screen out distortions from the holiday, which falls on different dates within the two months each year.
Analysts said the February deficit was likely to be temporary and China should return to surplus in coming months.
For the January-February period, exports rose 21.3 per cent to $US247.5 billion ($A245.62 billion) while imports gained 36 per cent $US248.4 billion ($A246.51 billion), for a deficit of $US900 million ($A893.17 million).
That export growth was down only slightly from the 28 per cent rate of the second half of last year, said Citigroup economist Minggao Shen.
Exports are “moderating, which is expected, but not by much,”
Shen said. February’s trade gap “is due mostly to relatively fast
A smaller trade surplus might help to ease trade strains with Washington and other governments that complain Beijing is giving its exporters an unfair advantage with currency controls and other policies.
Stronger imports could help economies that are looking to China’s robust growth to drive demand for their goods. Imports also might benefit from government efforts under way to boost consumer spending to reduce reliance on exports and investment.
China is a major importer of oil, iron ore and raw materials and runs a deficit with suppliers such as Saudi Arabia and Australia. It pays for that by running multibillion-dollar surpluses with the United States and Europe.
Weak consumer demand in the West helped to narrow China’s February trade surpluses with the United States and Europe. The gap with the US fell 23.7 per cent from a year ago to $US8 billion ($A7.94 billion). The surplus with the 27-nation European Union, Beijing’s biggest trading partner, declined 30.3 per cent to $US7.6 billion ($A7.54 billion).
Chinese purchases from major exporters of minerals and farm goods surged, driven by higher prices. Imports from South Africa were up 174.6 per cent, from Canada by 114 per cent and from Australia by 53.6 per cent.
Analysts expect a Chinese global trade surplus this year of $US160 billion ($A158.79 billion)-$US200 billion ($A198.48 billion) but say that should narrow if oil and commodity prices stay high. Last year, China ran a trade surplus of about $US16 billion ($A15.88 billion) a month.
Mark Williams of Capital Economics said he estimated the surplus would have stayed at that level in January and February if commodity prices were unchanged from a year ago.
“Leading indicators of export demand and past experience both suggest that the surplus will rebound strongly in the months ahead,” Williams said in a report. “February’s numbers do not point to a dramatic slowdown either in China or abroad.”
January-February exports were $US247.5 billion ($A245.62 billion) while imports were $US248.4 billion ($A246.51 billion), producing a deficit of $US900 million ($A893.17 million), customs data showed. In February, exports were $US96.7 billion ($A95.97 billion) while imports were $US104 billion ($A103.21 billion).
Commerce Minister Chen Deming said Monday that imports should rise this year, possibly narrowing the trade gap, as the communist government promotes consumer spending to reduce reliance on exports and investment to drive growth.
Plans call for raising household spending power through wage hikes and subsidies to poor families.
“Our foreign trade policy principle this year is ‘stabilise exports, promote imports, reduce the surplus’,” Chen said. Still, he said Beijing had no plans to de-emphasise exports and expects a trade surplus for the year.
Imports also are being driven by economic growth that hit 10.3 per cent last year. This year, the International Monetary Fund is forecasting a 9.6 per cent expansion.
This week, the Cabinet’s planning agency said China should avoid a “double dip” slowdown in growth – a positive sign for economies that are counting on Chinese demand to help drive sales of their goods.
Meanwhile, China’s trade is starting to reflect the impact of rising Chinese wages and other costs that are forcing exporters to hike prices for foreign customers.
Producer prices rose 6.6 per cent in January and analysts expect elevated inflation through at least the middle of this year due to strong demand and high global commodity prices.
Global Sources, a company that connects Chinese suppliers with foreign customers, said last month that 74 per cent of companies responding to a recent survey raised prices last year by up to 20 per cent due to higher costs for materials and components.
A separate Global Sources survey found 31 per cent of companies that responded were increasing purchases from Vietnam due to higher Chinese prices.