Australia's monthly trade surplus narrowed from A$13.475 billion in November to A$12.237 billion in December. Exports fell on the month for the third consecutive month, but imports rebounded.

In seasonally adjusted terms, the value of exports fell 1.4 percent on the month in December after dropping 1.0 percent in November. Exports of non-rural goods (around 60 percent of the total) fell 2.6 percent on the month after falling 1.2 percent previously, partly reflecting declines in the value of coal and gas exports. Rural goods (around 15 percent of the total) fell 3.7 percent on the month after dropping 2.9 percent previously, while services exports (around 20 percent) also weakened, down 0.4 percent after advancing 5.6 percent previously. Year-on-year growth in total exports moderated from 26.7 percent in November to 25.9 percent in December.

Seasonally adjusted imports rose 1.0 percent on the month in December, rebounding from a decline of 3.1 percent in November. Imports of consumption goods, capital goods and services all posted solid increases on the month, partly offset by a bigger decline in imports of intermediate and other merchandise goods. Total imports rose 14.4 percent on the year in original terms in December after advancing 22.3 percent in October.

Consensus for goods and services trade in December is a surplus of A$12.4 billion versus November's surplus of A$13.2 billion.

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.