AU: Merchandise Trade

October 5, 2016 07:30 CDT

Consensus Actual Previous Revised
Level A$-2.3B A$-2.01B A$-2.41B A$-2.12B
Imports-M/M -0.35% -0.4% -0.04%
Imports-Y/Y -1.73% -2.4% -1.69%
Exports-M/M 0.04% 2.8% 4.07%
Exports-Y/Y 2.05% -0.6% 1.20%

Australia's trade balance improved by more than expected in August, with the deficit narrowing to A$2.01 billion (consensus A$2.3 billion) from a revised July deficit of A$2.12 billion (previously A$2.41 billion). As was the case in July, the fall in the trade deficit in August was largely driven by changes in exports and imports of non-monetary gold, which have been volatile in recent months. Even abstracting from this impact, Australia's underlying trade performance was reasonably positive in August.

Exports were basically flat on the month and rose 2.05 percent from a year ago. Most major categories of exports recorded positive growth in August, including rural goods (around 13 percent of total exports), non-rural exports (around 57 percent of the total) and services (around 23 percent of the total). These gains, however, were offset by a fall in exports of non-monetary gold, which rose sharply the previous month.

Imports, meanwhile, fell 0.35 percent in August and were down 1.73 percent from a year ago. The fall in headline imports was driven by lower imports of consumption goods, capital goods and intermediate and other merchandise goods. Imports of non-monetary gold, however, rose sharply in August, largely offsetting declines in other categories of goods imports. Services debits also picked up in August.

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.