What does it all mean?

• The latest trade data shows that Australia is paying its way in the world notching up its fourth consecutive trade surplus. In fact the cumulative trade surplus over the past four months was over $3.1 billion – the largest surplus in over two years for a similar period. If there is one downside it is the fact that the Aussie dollar has lifted towards US93c and may have find further strength in coming months. Still, while businesses don’t like the strong currency, consumers would applaud the firmer Aussie. In addition the Reserve Bank seems more comfortable with the stronger currency given the domestic economic recovery is more concrete and export growth is still healthy.
• Interestingly Australia’s trade exports with China surged to a record $100 billion over the year to March and well over a third of our exports now head to China. Mining investment may have flattened, but the boost to the economy from Chinese purchases of our resources is on-going.
• In fact while some fret that the mining boom is over, in the background Australia continues to rack up record trade surpluses with China. The trade surplus with China hit a record high $51.7 billion in the year to March. Interestingly over a quarter of all our trade is now conducted with China. Our reliance on China is now even greater than when Japanese industrialisation was at its peak.
• Looking forward, exports may be marginally disadvantaged from a mildly higher Australian dollar. However the fortunes of Australia’s external trade accounts rests squarely on the mining boom, and the rebound in activity across emerging economies certainly bodes well for Australian coffers. Healthy prices and strong growth in iron ore volumes are likely to ensure that trade surpluses are part of the economic landscape. Over the next year the anticipated lift in LNG export volumes should ensure a further improvement in Australia’s trade accounts.

What do the figures show?

International trade:

• Australia’s trade accounts narrowed from a revised surplus of $1,257 million in February (previously $1,200 million) to a surplus of $731 million in March.
• In March, exports of goods and services fell by 1.8 per cent (goods fell by 2.4 per cent) while imports of goods and services fell by 0.1 per cent (goods up 0.1 per cent). Exports are up 12.9 per cent on a year ago, while imports are up by 7.4 per cent.
• Rural exports rose by 1.3 per cent in March while non-rural exports fell by 2.9 per cent.
• The main components contributing to the fall in exports were: metal ores and minerals, down $548m (6 per cent). Offsetting the falls was tourism-related services credits which rose $39m (1 per cent).
• Within imports, consumer imports fell by 0.7 per cent in March with capital goods imports down 2.2 per cent while intermediate goods imports rose by 2.3 per cent.
• Consumer goods imports are up 4.6 per cent on a year ago while capital goods imports are up 14.8 per cent and intermediate goods imports are up by 8.9 per cent.
• The net services deficit narrowed by $76 million to $1,000 million in March.
• Australia’s exports to China hit a record $100.3 billion in the year to March, up 32.1 per cent over the year and accounting for a record 36.7 per cent of Australia’s total exports. The share of exports going to Japan and the US were at, or near, record lows. In the month of March, Australia shipped goods totalling a record $9.5 billion to China.
• Australia’s imports from China hit a record $48.7 billion in the year to March, up 9.1 per cent on a year ago and accounting for 19.6 per cent of Australia’s total imports.
• Australia’s rolling annual trade surplus with China rose from $50.1 billion to a record $51.7 billion in March, translating to over $2,200 for every Australian person.

What is the importance of the economic data?

• The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.
• The solid trade surplus and further improvements in the domestic economy will support the Aussie currency. Our CBA currency strategies expect the Aussie dollar to rise to US97c by year end.
• Anyone placing hope in a rate cut would be relying on a fresh crisis in the global economy. That seems unlikely, although the situation in the Ukraine needs to be watched. In addition if the upcoming Federal Budget cuts too deeply, and adversely affect confidence and spending the Reserve Bank may shift towards an easing bias.
• However Central view is that rate cuts are off the agenda, and while there is likely to be an extended period of interest rate stability, more discussion will centre on when the first rate rise will take place. We believe that the next move in interest rates is up, but not until later in the year, say around November and December.

What are the implications for interest rates and investors?

• The solid trade surplus and further improvements in the domestic economy will support the Aussie currency. Our CBA currency strategies expect the Aussie dollar to rise to US97c by year end.
• Anyone placing hope in a rate cut would be relying on a fresh crisis in the global economy. That seems unlikely, although the situation in the Ukraine needs to be watched. In addition if the upcoming Federal Budget cuts too deeply, and adversely affect confidence and spending the Reserve Bank may shift towards an easing bias.
• However Central view is that rate cuts are off the agenda, and while there is likely to be an extended period of interest rate stability, more discussion will centre on when the first rate rise will take place. We believe that the next move in interest rates is up, but not until later in the year, say around November and December.