Australia's trade balance strengthened well beyond expectations in November, swinging from a deficit of A$1.19 billion in October (revised from a deficit ofA$1.54 billion) to a surplus of A$1.243 billion, compared with the consensus forecast of a deficit of A$300 million. This is the first trade surplus since early 2014 and was mainly driven by a sharp increase in exports in November in response to higher global commodity prices.
On a seasonally adjusted basis, exports rose 8.4 percent month-on-month in November, while imports fell 0.1 percent on the month. Exports rose 16.8 percent year-on-year in original terms and 15.7 percent in seasonally adjusted terms, while imports fell by 1.7 percent year-on-year in original terms and by 2.4 percent in seasonally adjusted terms.
The large increase in exports in November was mainly driven by non-rural goods, which account for almost 62 percent of the total after an increase of 12.2 percent on the month. Global commodity prices rose sharply in November, pushing up the unit value of key Australian exports, particularly iron ore, coal and natural gas. Despite these higher prices, export volumes for these commodities also rose on the month. Improved conditions in the Chinese manufacturing sector and a sharp depreciation of the Australian dollar in November following the outcome of the United States presidential election may have helped to boost volumes despite the increase in unit values.
Exports of rural goods, around 13 percent of total exports, also recorded strong growth of 17.3 percent in November. Exports of services (around 21 percent of the total) were flat on the month, while exports of non-monetary gold (around 5 percent of the total) fell 17.9 percent.
The small fall in headline imports was mainly driven by lower imports of capital goods and consumption goods, outweighing modest increases in imports of services, intermediate and other merchandise goods and non-monetary gold.
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.