Australia’s trade deficit likely to have contracted sharply in October

Sharp increase in commodity price is expected to have reduced Australia’s trade deficit to a 29-month low in October. Prices of commodities that are of vital importance to Australia, particularly iron ore and coal in its various forms, have been on tear in 2016, especially in the second half of this year, said Societe Generale in a research report.

The RBA’s index of commodity prices shows that these increased another 7.9 percent sequentially in October, bringing the gain in three months to 11 percent. This might provide export values a big boost, even if volumes are slightly changed.

“We regard our 2 percent mom forecast for exports in October as more likely to be beaten rather than undershot”, added Societe Generale.

In the meantime, imports are expected to have been limited by the additional appreciation of the Australian dollar that appreciated another 1.5 percent sequentially in October in trade-weighted terms on top of the 2.3 percent in the prior three months.

Moreover, volumes of import are expected to have been subdued, showing continued weakness in investment and moderate growth in private consumption. Overall, a significant decline of AUD 660 million in the monthly trade deficit is expected, which would be the smallest deficit seen since April 2014, according to Societe Generale.

At 12:00 GMT the FxWirePro's Hourly Strength Index of Australian Dollar was bullish at 88.7062, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -43.5753. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex