Australia is running sizable trade deficits as sharply lower commodity prices dent export earnings. The trade deficit expanded to A$3.1 billion in August from a revised A$2.8 billion in July. Exports declined 0.5 percent on the month and were up 0.6 percent from a year ago. Imports were 0.6 percent higher in August and 8.3 percent above the same month a year ago.
Rural goods exports slipped 1.0 percent while nonrural goods were up 3.0 percent. Consumption imports were up 2.0 percent while capital goods retreated 1.0 percent. The main components of capital goods that contributed to the decline were machinery & equipment, down 15 percent and civil aircraft and confidentialized items, down 17 percent.
A widespread slump in commodity prices has kept a lid on the value of Australia's exports, while a lower exchange rate has caused import values to rise.
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.
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