Australia November Balance of Trade
One of the five major monthly events that could move the AUD is the Balance of Trade, expected to be released on Wednesday at 19:30 EST (or Thursday at 01:30 CET). The Australian economy is highly dependent on exports, with trade accounting for just under 40% of the country’s GDP. It’s not surprising that this can have a major impact on the currency.
What’s been going on
To illustrate the kind of effect the data can have on the currency, here’s a clean 5-min chart of the AUDUSD from last month’s release, showing nearly a thirty pip jump after the balance of trade came in with a surplus of AUD3.2B, well ahead of the AUD1.70B expectation.
Australia has been maintaining significant surpluses since January of this year, with a steady progressive increase that consistently beat expectations since April. The drive has been from increasing exports, aided by higher commodity prices, specifically iron ore, which is Australia’s primary export.
For reference, the price of iron ore was at $64/ton in June and peaked at $76/ton in late October. Since mid-November, however, it’s taken a bit of a nose-dive back to $66/ton trading most recently, and that will weigh on the trade balance.
Further to that, on Monday we had the release of the Commodity Index for November, which dropped from 123.7 to 122.1. This isn’t all that surprising when we consider that the chief consumer of commodities is China, Australia’s major trade partner, and last month China’s November Manufacturing PMI came in just technically in growth at 50.0 (less than the 50.2 expected).
A further worrying sign is that November job advertisements dropped by 0.3% in November, keeping the number within the range of the year, but still at the bottom of it, though it’s unlikely to have an impact on consumer spending enough to slow imports.
Despite these less than positive data points, expectations for November’s balance of trade remain high: the consensus is for a surplus of AUD 3.20B, which would be the highest since February 2017, and even higher than the previous month’s, when exports jumped by 1.0%, and imports fell by 1.0%.
Part of this abundance of confidence can be attributed to the wealth of worse than expected data relating to Q3 that came out late in November. If the internal economy isn’t performing as well, this could sap demand for imports, and help keep the balance from dropping despite lower export values.
Generally speaking, a better trade balance than expected is seen as positive for the AUDUSD, but given how high the balance is expected to be already, a beat would be quite hard. A miss of expectations would be seen as negative for AUDUSD which has been recovering a bit since bottoming out early in October.
In fact, that breakout above the downward channel that the currency had been maintaining since February was due in part to the better than expected trade balance released on Nov 1.
For now, the pair his hovering right at the first Fibonacci retracement, so there is a pretty wide range in between the next pivot points. To the downside, support is seen around 0.7220, with resistance at 0.7460.