Australian Dollar Drops as Trade Balance Figures Disappoint

Talking Points:

• Australian Trade Deficit –A$1911M in May vs. –A$200M Expected
• Imports Fell by 1 Percent m/m, Exports Declined by 5 Percent m/m
• Australian Dollar Drops Sharply vs. USD After Trade Data Release

Australia’s Trade Balance for the month of May came in at –A$1911M today,whichmarks the largest trade deficit for the country since November 2012. This data was well below the market expectations of -A$200M. The prior month’s figures were also significantly revised to reflect a trade deficit of -A$780M, a downgrade from the previously reported -A$122M shortfall.

Numbers released by the Bureau of Statistics showed that imports fell by 1 percent while exports fell by 5 percent. A deeper look into these numbers revealed a significant drop in exports of energy commodities like coal and natural gas as well as metals like copper and aluminum.

The Australian Dollar fell sharply against the USDollar after the data was released. Traders typically interpret a trade deficit as negative for the relevant currency, speculating that the underlying outflow of capital that the gap implies will put downward pressure on the exchange rate.

AUDUSD [15 mins – 07/02/2014]. Chart created using FXCM MarketScope.