Daily Commentary BY THE CURVE TEAM –

Australian Trade Balance Booms as Another Central Bank Hikes

3rd of August, 2018

Australia’s trade balance surged in June thanks to solid growth in exports which saw them hit an all time high. Offshore and upward pressure on rates globally continues with another central bank lifting rates.

Thanks to the 2.6% increase in the value of exports in June, Australia’s trade balance more than doubled from the prior month, hitting $1.9bln. The result was more than double what the market had been expecting and is the largest trade balance since May 2017. Helping boost the balance was the fact that imports fell 0.7% over the month.

As opposed to the improvement in the trade balance in the first quarter, which was driven by volumes bouncing back from supply disruptions in the 4th quarter, this quarter’s bounce has been driven by prices. Economists currently expect that despite the large trade surplus for the quarter, net exports are only likely to add marginally to growth in Q2 after being one of the biggest contributors to growth in Q1.

Today we will get another important contributor to growth with the June retail sales figures. The market is expecting sales for the month to have growth 0.3% while sales ex-inflation for the quarter are expected to be up 0.8%.

The removal of emergency settings of monetary policy in various jurisdictions around the globe continued overnight. The Bank of England voted to lift their overnight benchmark rate for the second time since the GFC despite the growing threat of a hard Brexit ahead.

Despite lifting rates, the outlook for further hikes is far less aggressive than what we have seen with the Fed in the US. It is entirely conceivable the BoE may even need to reverse the recent move if a hard Brexit does materialise and the UK economy comes under pressure.

Finally, the US will be back in focus tonight with the all important monthly nonfarm payrolls report scheduled for release.

David Flanagan

Director - Interest Rate Markets