Australian Trade Surplus Widens to Provide Brief Relief

Highlights

• The Australian trade surplus widened from A$10.454 billion to A$11.791 billion in May.
• Exports jumped by 4.4%, while imports increased by 2.5%, painting a rosy trade picture.
• However, US ADP nonfarm and the all-important ISM Non-Manufacturing PMI will likely have more impact.

It was a relatively busy start to the day on the Asian economic calendar. Australian trade data for May was in focus amidst rising US-China tensions.

The Australian trade surplus widened from A$10.454 billion to A$11.719 billion in May. Economists forecast an A$10.500 billion trade surplus.

According to the ABS,

• Goods and services exports increased by 4.4% (A$2,437 million) in May.
  • Non-monetary gold exports surged by 77.1% (A$1,256), with general merchandise exports rising by 2.3% (A$1,055 million).
• Imports of goods and services increased by 2.5% (A$1,100 million).
  • General merchandise imports increased by 2.0% (A$698 million), with non-monetary gold imports up 90.0% (A$403 million).

The latest trade report provided some investor relief, with the widening trade surplus coming despite economic woes in China. While the trade data was bullish, we don’t expect the report to materially influence the RBA and the outlook for interest rates.

AUD/USD Reaction to Australian Trade Surplus

Ahead of the trade data, the AUD/USD fell to a pre-stat low of $0.66511 before rising to a high of $0.66588.

However, in response to the trade data, the AUD/USD rose from $0.66530 to a post-stat high of $0.66720.

This morning, the AUD/USD was up 0.14% to $0.66641.

Next Up

German factory orders will draw interest early in the European session. Another decline in orders would fuel recessionary fears and test buyer appetite for riskier assets and commodity currencies.

However, US ADP nonfarm employment change and ISM Non-Manufacturing PMI numbers will have more impact.

A sharp pickup in service sector activity and a better-than-forecast rise in nonfarm employment would support a hawkish Fed policy outlook. However, investors should look beyond the ISM headline PMI, with the prices and employment sub-components likely to garner interest.

Other stats include the weekly jobless claims and JOLTs job openings that need consideration ahead of tomorrow’s US Jobs Report.

Away from the economic calendar, China-US tensions will also play a hand ahead of US Treasury Secretary Yellen’s visit to Beijing.