What is a Current Account Deficit?
Current Account Deficit
Forex Trading Glossary
Quick Answer: A current account deficit means a country imports more goods, services, and income than it exports, relying on foreign financing.
What is a Current Account Deficit?
A current account deficit occurs when a country imports more goods, services, and capital than it exports. The shortfall must be financed through borrowing or selling domestic assets to foreign investors.
Implications of a Deficit
- Currency pressure: Sustained deficits can weaken a currency if financing dries up.
- Dependence on flows: Requires foreign investment or borrowing.
- Interest-rate sensitivity: Higher yields may be needed to attract capital.
- Competitiveness concerns: May reflect weak export sectors.
Context Matters
Deficits are not automatically negative if they fund productive investment and investors retain confidence.
Trading Considerations
- Monitor financing: Watch bond demand and foreign direct investment.
- Compare peers: Currencies with smaller deficits may outperform.
- Policy reaction: Fiscal or monetary tightening may be used to rebalance.
- Risk sentiment: During global stress, deficit currencies can sell off sharply.
Related Terms
Learn More About Forex Trading
Now that you understand current account deficit, explore our comprehensive guides: