Australia's merchandise trade deficit soared to the largest on record A$3.888 billion. Exports dropped 5.7 percent on the month and 8.1 percent from a year ago. Imports were up 3.9 percent and 2.5 percent. Analysts anticipated a trade deficit of A$2.3 billion.
Non-rural goods dropped 8 percent, partly driven by coal, coke & briquettes which were down 22 percent as a result of the temporary closure of ports due to severe weather conditions. Metal ores and mineral exports sank 13 percent. Rural goods slid 1 percent.
Among imports, capital goods were up 10 percent driven by imports of machinery & industrial equipment, up 69 percent. Intermediate & other merchandise goods and consumption goods both gained 4 percent.
Only two days ago the Reserve Bank of Australia left its key interest rate unchanged at 2 percent. Tonight's lackluster trade and retail sales data can only add to evidence that another rate cut will be needed.
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.