Australia's goods trade surplus narrowed from a revised A$4.859 billion in April to A$2.238 billion in May, below the consensus forecast of A$5.046 billion. In seasonally adjusted terms, the value of exports fell 2.7 percent on the month in May after falling 1.7 percent in April, with exports dropping 0.9 percent on the year after a previous increase of 0.3 percent. Weakness in exports was broad-based, with exports of both rural and non-rural goods falling on the month. Imports rose 3.8 percent on the month after rising 1.6 percent previously, with year-over-year growth picking up from 3.2 percent to 3.5 percent.

The surplus is expected at A$5.046 billion in May after A$5.413 billion in April.

The Goods Trade Balance measures the difference between imports and exports of tangible goods. 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.