AU: Merchandise Trade

November 2, 2016 07:30 CDT

Consensus Actual Previous Revised
Level A$-1.7B A$-1.23B A$-2.01B A$-1.89B
Imports-M/M -0.8% -0.35% -0.8%
Exports-M/M 1.6% 0.04% -0.3%
Imports-Y/Y -6.1% -1.73% -2.0%
Exports-Y/Y -0.3% 2.05% 1.5%

Australia's trade balance improved by more than expected in September, with the deficit narrowing to A$1.23 billion (consensus A$1.7 billion) from a revised August deficit of A$1.89 billion (previously A$2.01 billion). This is the smallest trade deficit since December 2014. Exports rose by 1.6 percent on the month, though year-on-year growth fell from 1.5 percent in August to minus 0.3 percent in September. Imports fell by 0.8 percent on the month, with year-on-growth falling from minus 2.0 percent in August to minus 6.1 percent in September.

Most major categories of exports recorded positive growth in September, including rural goods (around 13 percent of total exports), non-rural goods (around 59 percent of the total) and services (around 22 percent of the total). Exports of coal made a particularly large contribution to the increase in total exports in September, increasing by 12 percent or A$349 million. These gains, however, were offset by a fall in exports of non-monetary gold of roughly the same magnitude.

The fall in headline imports was driven by lower imports of consumption goods, capital goods and non-monetary gold. Imports of intermediate and other merchandise goods and services rose in September.

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.