Australian bond yields, currency climb on record trade surplus

Photo; Joel Kowsky via Getty Images

Australian government bond yields and the currency rose after the nation’s trade surplus reached a record high in December, forcing investors to reassess the chances of another central bank rate cut.

Yields on the 10-year benchmark note rose 4.5 basis points to 2.79%, its highest level in a week. The rate is up 8 basis points from Wednesday’s low. Yields were up across the curve by between 1.3 basis points to 4.5 basis points. The Australian dollar breached the 76 US cents mark to trade 0.5% higher at US$0.7626.

The record trade balance will support net exports, economic growth and may even salvage the country’s top notch AAA credit rating. All of that could play into Reserve Bank of Australia’s hands and help it preserve the diminished monetary policy ammunition.

This chart shows the bond market reaction to the data


And this one the currency moves


“The trade data is positive for the economy in terms of export earnings and income,” Martin Whetton, a rates strategist at ANZ Bank told Business Insider. “Probably at the margins, it will make investors reassess the chances for further rate cuts.”

The futures market is betting the central bank will stay pat for the rest of the year, Whetton said.

According to the Australian Bureau of Statistics (ABS), the trade surplus swelled to $3.511 billion in seasonally adjusted terms, smashing market expectations for an increase to $2.2 billion. It easily breezed past the previous record high of $2.236 billion set in February 2009. November’s surplus, originally reported at $1.243 billion, was also revised up to $2.04 billion.

This chart illustrates the soaring trade surplus


The ABS said that the value of exports jumped by 5% to $32.63 billion, also a record high, assisted by an enormous surge in the value of non-rural exports over the month. They alone surged by $1.249 billion, or 6% in December, thanks to surging bulk commodity prices and a lift in export volumes.