AU: Merchandise Trade

September 7, 2016 08:30 CDT

Consensus Actual Previous Revised
Level A$-2.7B A$-2.41B A$-3.19B A$-3.25B
Imports-M/M -0.4% 2.0% 1.9%
Exports-M/M 2.8% -0.8% -1.1%
Imports-Y/Y -2.4% -2.3% -2.4%
Exports-Y/Y -0.6% -0.9% -1.1%

Australia's trade balance improved by more than expected in July, with the deficit narrowing to A$2.41 billion (consensus A$2.7 billion) from a revised June deficit of A$3.25 billion (previously A$3.19 billion). Exports rose 2.8 percent on the month and fell 0.6 percent from a year ago. Imports fell by 0.4 percent in June and were down 2.3 percent from a year ago.

The increase in headline exports was primarily driven by a large increase in non-monetary gold. Although this is a normally a small component of exports, in July it increased to around 9 percent of the total, and was up 62 percent compared with its level in June.

Rural goods exports (which account for around 15 percent of total exports) rose 1 percent in July, while non-rural goods exports (around 55 percent of the total) fell by 2 percent. Exports of services (around 20 percent of the total) were flat.

The fall in headline imports was driven by lower imports of consumption goods, with other categories of imports gaining on the month.

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.