Record trade deficit in Australia

The Australian trade balance data for April provided a considerable surprise. The deficit reached the highest level ever reached in Australia (3.89bn. A$). The effect came from both directions: exports collapsed by 6% against March, imports rose by 4%. It was obviously not just the effect of easing economic momentum amongst Australia's East Asian trade partners. It is also due to the fact that the Australian dollar - despite easing since mid-2014 - remains at high levels, as the Reserve Bank of Australia (RBA) continues to point out. 

"However that does not necessarily mean that the Australian central bank will weaken the currency with further rate cuts. The rate cuts so far have already fuelled domestic demand and are likely to be one of the reasons for the trade deficit", expects Commerzbank. 

From the RBA's point of view the weak retail sales in April which have been published simultaneously today should be interpreted as a signal in the right direction. Further rate cuts might put further pressure on the trade balance. From the point of view of the Australian central bank it would be ideal if its US colleagues would further weaken the Aussie dollar with a normalisation of their monetary policy while the Australians could limit demand by not implementing further rate cuts. All in all it is justified that the market reacts with visible but not excessive AUD weakness to the data. If everything goes according to the RBA's plan, a relatively slow depreciation of the Australian currency should be expected, says Commerzbank.