Australia's goods trade surplus narrowed from A$6.612 billion in July to A$1.825 billion in July, well below the consensus forecast of A$6.25 billion. In seasonally adjusted terms, the value of exports fell 7.8 percent on the month after advacning 2.5 percent previously, while imports rebounded from a decline of 2.4 percent to an increase of 3.2 percent.

The surplus is expected to narrow to A$6.25 billion in August from A$7.31 billion in July.

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.