Australia’s Trade Surplus jumps to AUD2,826M in September

Australia’s trade surplus widened to A$2,826M MoM in September from A$495M in the previous reading, according to the latest foreign trade figures released on Thursday by the Australian Bureau of Statistics.

Further updates to follow...

Australian Dollar: Frequently Asked Questions

Interest rates, trade and sentiment drive the Australian Dollar

Interest rates set by the Reserve Bank of Australia (RBA) are among the strongest influences on the Australian Dollar (AUD). Australia’s abundant natural resources also make the price of iron ore, its largest export, an important driver. Other factors include economic conditions in China, Australia’s biggest trading partner, alongside domestic inflation, economic growth and the trade balance. Investor appetite for risk matters too: a shift towards riskier assets, known as risk-on, supports the AUD, while a preference for safe havens is described as risk-off.

Reserve Bank of Australia policy shapes the Australian Dollar

By setting the interest rate at which Australian banks can lend to one another, the Reserve Bank of Australia (RBA) affects borrowing costs across the economy and, in turn, the Australian Dollar (AUD). Its central objective is to keep inflation stable at 2-3%, raising or lowering interest rates to achieve that goal. Rates that are relatively high compared with those of other major central banks support the AUD; relatively low rates have the reverse effect. Credit conditions can also be influenced through quantitative easing or tightening, with easing weighing on the AUD and tightening supporting it.

China’s economic performance influences the Australian Dollar

As Australia’s largest trading partner, China has a substantial influence on the value of the Australian Dollar (AUD). A strong Chinese economy buys more Australian raw materials, goods and services, increasing demand for the currency and lifting its value. When Chinese growth falls short of expectations, the reverse applies. Unexpected strength or weakness in China’s growth figures therefore often feeds directly into the Australian Dollar and its currency pairs.

Iron ore prices help determine the Australian Dollar’s direction

With annual exports worth $118 billion according to 2021 data, iron ore is Australia’s biggest export, and China is its main destination. Changes in its price can consequently influence the Australian Dollar. Rising iron ore prices generally lift overall demand for the AUD and push the currency higher, while falling prices have the reverse effect. More expensive iron ore also tends to increase the likelihood of an Australian trade surplus, providing further support for the AUD.

Trade surpluses support the Australian Dollar

Another influence on the Australian Dollar is the trade balance: the difference between a country’s export earnings and its spending on imports. Strong overseas demand for Australian exports can lift the currency’s value when purchases by foreign buyers create more demand for the AUD than Australia’s import spending offsets. A net trade surplus therefore strengthens the AUD, whereas a trade deficit has the opposite effect.

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