Australia’s trade balance data is one of the five monthly events that routinely pushes the currency, but lately, it has been developing into the trendsetter. Data for the month of December is expected to be released at 19:30 EST (or 01:30 tomorrow CET).
The importance of this data is understandable given that just under 40% of Australia’s economy is based on trade. Here are some things to keep in mind in the lead-up to this data release.
As we discussed in previous articles, twice now this data has been pivotal around market changes; first in November when the AUDUSD broke out of a months-long downward channel; then in December when the currency pair course-corrected after November’s climb, and retreated back to the prior lows.
What happened? The last trade balance came in at AUD2.32B, which was significantly below the oversized expectation of AUD3.20B, and the prior month (October) was revised from AUD3.02B to AUD2.94B. Analysts had clearly gotten ahead of themselves with their expectations, despite the selection of less auspicious data that we pointed out in the article ahead of the release.
We should also point out that exports last month did jump 1.0% to an all-time high, but this was tempered by a 3.0% jump in imports, also to a record high. The biggest jump among imports? Fuel. Even though the spot price of crude was already on its way down during November, there is a delay in pricing for customers, which could explain this discrepancy.
The Current Situation
Australia continues to maintain relatively high surpluses like it has all of last year; for most of which it was beating expectations. So, the situation isn’t that Australia’s economy isn’t doing so well, or their exports are majorly suffering, just that the market hasn’t been all that good at pricing in the data ahead of release.
Iron ore is Australia’s chief export, and it started a bit of a nose-dive in October, which finished on November 27th where it hit $62.03/ton. Since then, however, it has recovered substantially and is back to its last year high trading at $73.09/ton. That last year high coincided with Australia’s best surplus since early 2017.
Further to this, last Wednesday we got the Index of Commodity Prices being released, showing a further 0.6% increase (in Aussie terms) during December, putting it back on par again with early 2017. This despite China’s manufacturing PMI slipping for the first time into contraction since 2016 at 49.4 for December; however, SHFE stockpiles have slowly diminished over the last month.
Despite these auspicious indicators, analysts have trimmed back their expectations substantially, with the consensus being of a trade balance for December coming in at AUD2.23B, which would be lower than last month’s AUD2.32B. A factor that might push the balance down despite better commodity prices is the increase in consumer spending in the lead-up to the holidays, the majority of which is imported.
Conventional wisdom is that a bigger surplus would strengthen the Aussie, while a surplus below expectations would lead to weakness. On the technical side, the AUDUSD has three times now bounced off the 0.7050 level (excluding the unusual volatility associated with holiday trading). A good trade balance reading might help it get back to the first Fibo level around 0.7280.