Australia: Trade Balance and Retail Sales

Then at night the attention will be focused on the AUD with the publication of two important data series at the same time. Once the RBA decision (which caused little reaction in the markets) has been overcome, the focus is now on the trade balance and retail sales. The first one is beginning to set a trend, which is not surprising when considering that just under 40% of theBusiness Sales Australia economy is related to trade. 

Agenda and expectations

We could see more volatility this time due to the simultaneous publication of all the data. Both the trade balance and retail sales are important to the market for different reasons. 

The expectation for retail sales is that they return to growth with an increase of 0.1% compared to the first drop in five months of 0.4% previously noted. That was a negative surprise for the markets. For the trade balance, it is expected to be unusually high at AUD3.00 billion, but less than the record of the previous month at AUD3.68 billion. The trade balance has had a habit in recent months of exceeding expectations. 

It should be remembered that the results of the previous month are typically adjusted in these series, which can also move to the market especially if the results are in line with expectations. 

Market behavior

It is not easy to say which data will be more taken into account by the market because they have a dissimilar influence on the market. Retail sales are an important measure of market health and inflationary expectations, which is important to analyze potential future changes in monetary policy. As such, it is useful to consider retail sales as a tool to see how the future situation is coming. 

On the other hand, the trade balance is decisive for the value of the currency in relation to others, due to the capital flows necessary to pay for imported and exported goods. So, it is a better measurement of the immediate situation, but it is a bit late for being January information. The trade balance, especially its import component, is closely related to retail sales, as a substantial amount of spending in Australia is on imported goods. 

Australian balance sheet situation:

Basic goods are Australia's main export and are what most influence the balance. Last Friday we saw that the commodity price index rose another 4.8%, and is now close to its position at the beginning of 2013. It was one of the biggest increases in recent months. 

One of the main factors was the rise of the main Australian export: iron. As we mentioned earlier, at the end of January, iron prices jumped after the accident at a mine in Brazil of the company Vale, which forced the closure of production for a substantial period. The price of iron has then set somewhat, staying relatively high at $ 86.51 per ton, compared to the $ 61.30 recorded at the beginning of the current bull cycle at the end of last November. 

Months ago, the standard has been that exports grew more than imports, but last month was an exception due to the surprising 6.0% drop in imports mainly driven by consumer goods. This could be interpreted as a warning signal about the internal situation of the Australian market, although exports still show a healthy rise.