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

Australia’s trade surplus expanded month-on-month to A$2,826M 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

Which factors shape movements in the Australian Dollar?

Interest rates set by the Reserve Bank of Australia (RBA) rank among the main influences on the Australian Dollar (AUD). Australia’s wealth of natural resources 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 sentiment matters too: a preference for riskier assets (risk-on) supports the AUD, while a shift towards safe havens reflects risk-off sentiment.

Why do Reserve Bank of Australia decisions matter for 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 broader economy and, in turn, the Australian Dollar (AUD). Raising or lowering rates is the RBA’s main means of keeping inflation stable at 2-3%, its primary objective. When rates are relatively high compared with those of other major central banks, they support the AUD; relatively low rates have the reverse effect. Credit conditions can also be influenced through quantitative easing or tightening. Easing is negative for the AUD, whereas tightening is positive.

Why does China’s economic performance influence the Australian Dollar?

The Australian Dollar (AUD) is strongly influenced by China’s economic performance because China is Australia’s largest trading partner. A healthy Chinese economy buys more Australian raw materials, goods and services, increasing demand for the AUD and lifting its value. When Chinese growth falls short of expectations, the reverse applies. As a result, upside or downside surprises in China’s growth figures often feed directly into the Australian Dollar and its currency pairs.

Why are iron ore prices important for the Australian Dollar?

With annual exports worth $118 billion according to 2021 data, iron ore is Australia’s biggest export, and China is its main destination. This makes iron ore prices an important potential driver of the Australian Dollar. Rising prices generally lift overall demand for the currency and push the AUD higher, while falling prices have the reverse effect. Higher iron ore prices also tend to increase the likelihood of an Australian trade surplus, providing another source of support for the AUD.

Why does the trade balance matter for 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 creates demand for its currency. Where that demand exceeds the currency outflows needed to pay for imports, the resulting surplus demand alone lifts the currency’s value. A positive net trade balance therefore strengthens the AUD, while a negative balance has the reverse effect.

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