Australia's trade balance deteriorated unexpectedly in October, with the deficit widening to A$1.54 billion (consensus A$0.5 billion) from a September deficit of A$1.27 billion (revised from A$1.23 billion). Exports rose by 1.4 percent on the month and 4.9 percent on the year, while imports rose 2.3 percent on the month and fell 3.4 percent on the year.
Most major categories of exports rose in October, including non-rural goods (around 59 percent of the total), services (around 22 percent of the total) and non-monetary gold (around 6 percent of total exports). Coal and other mineral fuels recorded particularly strong increases. However, exports of rural goods (around 12 percent of the total) fell.
The increase in headline imports was mainly driven by capital goods though imports of services, consumption goods, and intermediate and other merchandise goods also recorded modest increases. Imports of non-monetary gold fell sharply in October.
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.