The Australian Trade Data for July was released this morning and it showed an unexpected drop back into deficit of $765 million on a seasonally adjusted basis. The market had been forecasting a surplus of $100 million and July’s result is more than $1 billion worse that the surplus that was reported for June.
At first blush it would be easy to be disappointed by this data given that the slip back into deficit but the reality is that while the underlying domestic economy hasn’t been that strong recently these data points and the sub components suggest there is still underlying strength in the key engine of growth over the past few years – mining and Capital investment.
In a note to clients after the release the ANZ said,
The result was driven by a sharp rise in import values, particularly ‘fuels & lubricants’, in part due to higher oil prices.
The previous three month’s trade surpluses have been revised lower by a cumulative AUD$1bn, mostly due to upward revisions to capital imports.
This was flagged in both the merchandise imports and Balance of Payments releases.
Indeed, Metals, Minerals and Ores are still holding up and so is Capital Goods as the ANZ notes – although as an import that appears as a negative in the chart below. This suggests that this sector has stabilised and while the global economic recovery continues Australia should not fear this part of the economy too much.
Coal was also up on the month rising 2.2% while the very volatile non-monetary gold was the big culprit for the exports undershooting falling almost 19% on the month.
This data is consistent with an economy that while it is growing below trend is by no means crashing – the transition continues but for the moment Australia truly is doing relatively well.
Currency and bond markets don’t react to Australian trade data in the way they did many years ago – its just not an important data release any more. But in a bigger picture sense these data support the Aussie dollar’s rally and to a certain extent suggest that the RBA may be happy at 2.5% for a while yet.
Greg McKenna is an active currency trader – he is small short AUD on a short time frame with a very tight stop.