AU: Merchandise Trade

Wed Sep 06 20:30:00 CDT 2017

Consensus Actual Previous Revised
Level A$0.95B A$0.46B A$0.86B A$0.89B
Imports-M/M -1.0% -0.9% 2.4% 2.2%
Exports-M/M 0.8% -2.2% -1.4% -1.3%
Imports-Y/Y 7.1% 6.5% 6.8%
Exports-Y/Y 15.6% 22.8% 22.8%

Australia's trade surplus narrowed to A$460 million in July from A$888 million in June (revised from A$856 million), below the consensus forecast of A$950 million. Although imports were broadly in line with the consensus forecast, exports fell short of expectations.

In seasonally adjusted terms, the value of exports declined 2.2 percent on the month in July to around $31.07 billion, down from A$31.78 billion in June. This was significantly weaker than the consensus forecast for an increase of 0.8 percent. This drop reflects weaker exports of non-rural goods (around 61 percent of total exports) and services (around 20 percent), partly offset by increases in exports of rural goods (around 14 percent) and non-monetary gold (around 5 percent). Year-on-year growth in total exports slowed from 22.8 percent in June to 15.6 percent in July in original terms.

Weakness in the value of non-rural goods exports was driven by declines in both the unit value and volumes of four of the six major commodity exports. Coal exports were particularly weak, reflecting weaker unit values for all three categories and a drop in volumes for two of them. LNG gas unit values and iron ore volumes also declined on the month in July.

Recent gains in the value of the Australian dollar also likely accounts for some of the weakness in exports growth in July. The Australian dollar has gained more than 10 percent versus the US dollar since the start of the year, with much of this appreciation taking place over July. Officials at the Reserve Bank of Australia have noted that these moves are weighing on the outlook for economic activity.

Seasonally adjusted imports fell 0.9 percent on the month in July to A$30.61 billion, down from A$30.89 billion in June. Imports of capital goods, consumption goods, intermediate and other merchandise goods, and non-monetary gold all declined on the month, partly offset by a small increase in imports of services. Total imports increased 7.1 percent on the year in original terms in July, up from an increase of 6.8 percent in June.

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.