December merchandise trade deficit was a less than expected A$436 million. This was the smallest deficit in nine months. Analysts expected a deficit of A$850 million. Exports were up 1.4 percent on the month but down 4.1 percent on the year. Imports slid 0.7 percent in December and were down 2.8 percent from a year ago. Seasonally adjusted, the preliminary December quarter 2014 deficit was $2.557 billion, a decline from the September quarter 2014 deficit of A$3.865 billion.
Exports were up 1.4 percent. Non-rural goods were down 2 percent while service exports were up 1.0 percent. Rural exports were up 10 percent. Other rural added 17 percent while cereal grains and cereal preparations were up 10 percent. Non-rural exports declined 2 percent with other mineral fuels and coal, coke and briquettes contributing to the drop. Metals, metal ores and minerals partially offset the decline.
Imports of intermediate and other merchandise goods and capital goods both declined. Non-monetary gold along with consumption goods and services advanced. Fuels & lubricants and iron & steel declined. However, processed industrial supplies imports were higher.
Merchandise trade balance measures the difference between imports and exports of both tangible goods and services. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade.
Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect the value of the Australian dollar in the foreign exchange market. Imports indicate demand for foreign goods while exports show the demand for Australian goods in its major export market China and elsewhere. The currency can be sensitive to changes in the trade balance since a trade imbalance creates greater demand for foreign currencies. The bond market is also sensitive to the risk of importing inflation. A word of caution -- the data are subject to large monthly revisions. Therefore, it can be misleading to form opinions on the basis of one month's data.