February trade deficit ballooned to A$3.4 billion from the revised A$3.2 billion in January. Exports edged down 0.2 percent on the month and were down 2.0 percent from the same month a year ago. Imports slid 1.2 percent on the month and dropped 8.5 percent on the year.
Exports of rural goods were down 5 percent. Among the categories that declined were other rural, cereal grains & cereal preparations and meat & meat preparations. Exports of non-rural goods were up 2.0 percent. The main components contributing to the increase were metal ores & minerals, other non-rural (including sugar & beverages) and metals (excluding non-monetary gold).
For imports, intermediate & other merchandise goods declined but consumption goods, non-monetary gold and capital goods increased.
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.