AUD2,826M: Australia’s September trade surplus widens sharply

A$2,826M was Australia's trade surplus in September. The Trade Balance widened month on month from the previous surplus of A$495M, according to the latest foreign trade figures released on Thursday by the Australian Bureau of Statistics.

Further updates to follow...

Australian Dollar: Key Questions Answered

Australian Dollar: Main Market Drivers

Interest rates set by the Reserve Bank of Australia (RBA) are among the strongest influences on the Australian Dollar (AUD). Australia's resource wealth also makes the price of Iron Ore, its largest export, a key driver. Other influences 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. Buying riskier assets (risk-on) supports the AUD, while seeking safe havens is known as risk-off positioning.

2-3% Inflation Target: RBA Policy and 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 rates across the economy and, in turn, the Australian Dollar (AUD). Its primary objective is stable inflation of 2-3%, pursued through increases or reductions in interest rates. 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 adjusted through quantitative easing or tightening. Easing weighs on the AUD, whereas tightening supports it.

China's Economy: A Key Influence on the Australian Dollar

As Australia's largest trading partner, China has a substantial influence on the Australian Dollar (AUD). A strong Chinese economy buys more Australian raw materials, goods and services. This increases demand for the AUD and lifts its value. When Chinese growth falls short of expectations, the effect is reversed. Chinese growth figures that surprise on either the upside or downside therefore frequently affect the Australian Dollar and its currency pairs directly.

$118 Billion in Annual Exports: Iron Ore's Influence on the Australian Dollar

At $118 billion a year, according to 2021 data, Iron Ore is Australia's biggest export, with China its main destination. This makes Iron Ore prices a potential driver of the Australian Dollar. Rising prices generally lift the AUD by increasing overall demand for the currency, while falling prices have the reverse effect. Higher Iron Ore prices also tend to make an Australian trade surplus more likely, providing further support for the AUD.

Trade Balance: How Surpluses and Deficits Affect the Australian Dollar

Export receipts minus import spending determine a country's Trade Balance, another influence on the Australian Dollar's value. Strong overseas demand for Australian exports can lift the currency purely through the excess demand generated by foreign buyers relative to Australia's spending on imports. A net trade surplus therefore strengthens the AUD, while a trade deficit has the reverse effect.

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