Part III. Fundamental Analysis / Chapter 12. Indicators of international trade

Balance of Payments: The Balance of Payments reflects the outcome of a country's international economic transactions by comparing the total inflows of payments from abroad to the total outflows of payments. The balance of payments includes transactions related to transfer payments, imports and exports of services, trade operations, and net factor income. The indicator is evaluated based on a positive or negative balance. An active balance (positive balance) or a decrease in the value of the passive balance (negative balance) favors the strengthening of the currency exchange rate. International transactions that contribute to the balance of payments are typically divided into two groups:

• Current Account Balance: This group includes trade balance operations (imports and exports of goods) and transactions related to the provision of services and transfers.
• Capital Account Balance: This group includes operations related to the import and export of private and government capital, official reserves of central banks, and the provision of international loans.

Reports on the balance of payments are published at 18:00 Moscow time on a quarterly basis, in the middle of the month.

Balance of Trade: The balance of trade is of significant interest in forecasting the currency market as it reflects the competitiveness of national goods in international markets and therefore has a strong influence on the exchange rate of the national currency abroad. The balance of trade shows the difference between imports and exports of goods. In practice, we talk about a trade deficit (negative balance, imports exceed exports) and a trade surplus (positive balance, exports exceed imports). A trade surplus indicates an inflow of foreign currency into the country, which positively affects the strengthening of the exchange rate. In the case of a trade deficit, on the other hand, external indebtedness increases, leading to a decline in the exchange rate.

The balance of trade and the exchange rate can influence each other to an equal extent. For example, a low exchange rate leads to lower prices in international markets, which adds competitiveness to goods, ultimately resulting in increased exports and a rise in the exchange rate. A high exchange rate, on the other hand, leads to the displacement of exported goods by cheaper alternatives, negatively impacting the trade balance and the exchange rate.

Special attention is given to exports when examining data on the balance of trade, as it is exports that influence the economic development of a country. Financial markets usually analyze export data, considering it more significant. However, reports on imported goods can also characterize the current economic situation in a country. An increase in imported goods indicates high consumer demand or an increase in raw material stocks, which can impact the exchange rate.

Compared to other indicators, data on the balance of trade are not explicitly linked to business cycle periods due to the differences in economic cycles of other countries, each with its own characteristics in terms of amplitude and phase of changes. The value of the trade balance is influenced by seasonal factors, which should also be taken into account when analyzing this indicator.

Data on the balance of trade are presented in reports categorized by types of goods, including raw materials and industrial supplies, food products, consumer goods, capital goods, automobiles, and other goods. The values are adjusted for seasonality and presented in both fixed and nominal prices. In practice, financial market analysts pay attention to the overall picture of the trade balance rather than individual reports on trade with other countries.

It is worth highlighting the trade balance between the United States and Japan. Firstly, the trade balance between these two countries is characterized by a large deficit, leading to the implementation of trade sanctions, political conflicts, and other issues. Secondly, aggressive interventions by Japanese banks to enhance the competitiveness of exported goods can lead to unexpected jumps in the exchange rate. Reports on the balance of trade are published in the third week of each month, covering the preceding two months.

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