Australia's trade balance strengthened in December, with the trade surplus increasing to A$3.51 billion, up from A$2.04 billion in November (revised up from $A1.24 billion). This is well above the consensus forecast of A$2.2 billion and is the largest monthly trade surplus on record, with big increases in coal and iron ore prices helping to deliver strong growth in exports.
On a seasonally-adjusted basis, exports rose 5.4 percent month-on-month to a new record high of A$32.6 billion. Year-on-year growth in exports accelerated from 19.2 percent in November to 33.7 percent in December in original terms, and from 18.6 percent to 32.1 percent in seasonally adjusted terms.
Non-rural goods, around 62 percent of total exports, made the biggest contribution to growth in headline exports, up around 6 percent month-on-month. This reflected strong increases in both unit values and volumes for exports of iron ore and coal. Exports of rural goods, around 13 percent of the total, also recorded solid growth in December, up around 3 percent on the month. Exports of services, around 20 percent of total exports, were flat on the month. Headline exports were also boosted by an increase of around 23 percent month-on-month in exports of non-monetary gold, around 5 percent of the total, reversing a large fall in November.
Imports, in contrast, were relatively steady, up 0.7 percent month-on-month on a seasonally-adjusted basis to A$29.1 billion. Imports fell 1.1 percent year-on-year in December in original terms, compared with a fall of 1.6 percent in November, while seasonally adjusted imports rose 0.1 percent year-on-year in December after falling by 2.2 percent in November.
The small month-on-month increase in headline imports was mainly driven by higher imports of consumption goods, intermediate and other merchandise goods, services and non-monetary gold, outweighing a fall in imports of capital goods.
Today's trade data show that Australia's economy has received a major boost from recent increases in global commodity prices, with unit values for several key exports recording double-digit increases in December. Net exports made a negative contribution to GDP growth in the three months to September, but this will likely be followed by a strong positive contribution in the three months to December. This may also strengthen the case for the Reserve Bank of Australia to keep policy rates on hold at its policy meeting scheduled for next week.
The 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.