Australia’s trade deficit narrows in January, AUD’s decline puts upward pressure on value of trade

In December, Australia's trade deficit had widened to $3.5bn from November's $2.8bn. However, it was majorly reversed in January, where the deficit narrowed to $2.9bn. The print was better than the market median forecast of a deficit of $3.2bn. The January's deficit of $2.9bn compares to an average monthly deficit of $3.2bn for Q4 2015. The export/import mix surprised slightly in the month, with both posting weaker prints than expected.

In January 2016, imports fell 1.1%, a fall of $320mn. The Australian dollar had declined in the month, depreciating 3.2% against the US dollar and fell 2.3% on a TWI basis, putting upward pressure on the AUD value of exports and imports. Imports declined throughout each of the broad categories. Meanwhile, exports rose just 1.1% in the month, up $226 million. The categories that contributed positively to exports were coal, fuels and gold. Against that, metal ores, including iron ore, fell $97mn, with a weaker result for 'other' ores.

In Q4, the trade balance had widened to $9.9bn from Q3's $7.3bn. The terms of trade declined further 3.2% in the December quarter as commodity prices dropped. Real net exports remained neutral in Q4. Meanwhile, export volumes grew 0.6% to be 5.7% higher during the year. Performance throughout the export basket differed from recent years, with iron ore and coal shipments slowing down, while gas sales are increasing now. In 2015, total resource export volumes rose 4.6%, softer than 11% rise in 2014.

Meanwhile, non-resource export volumes increased 7.3% in 2015 that includes an 8.3% increase in services and a rise of 12.7% in rural goods. In Q4, import volumes expanded 0.6% and in 2015 it grew 1.2%, as compared with drops of 2.4% in 2013 and 2.3% in 2014. Import volume strength was seen in consumer goods and intermediate goods (particularly fuel), whereas capital goods and services remained weak.