Talking Points:
- Australian Dollar declined as trade surplus figures fell short of market forecasts
- Exports fell 1%, with the value of shipments to China at the lowest yet this year
- Drop in front-end government bond yields pointed to ebbing RBA rate hike bets
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The Australian Dollar depreciated against its major peers as June’s trade balance data crossed the wires. The markets were looking for a surplus of A$1800 million. Instead, they got a far smaller A$856m as exports fell 1 percent. Perhaps most worryingly, the net value of goods sold to China – Australia’s largest trading partner – fell to a lowest so far this year.
International trade accounts for about one-fifth of Australian GDP. Sluggish performance on this front can undermine overall economic growth and reduce inflation, hurting the case for RBA interest rate hikes. Indeed, 2-year government bond yields fell as the data was released. That suggested the figures translated into a dovish shift in priced-in tightening prospects.
