Daily Commentary BY THE CURVE TEAM –

Market Bounce Continues As Australia’s Trade Balance Booms

2nd of November, 2018

Markets continue to rebound from the pessimistic crescendo but the true test lies ahead. The latest local data was a welcome piece of good news for both the currency and the Federal Budget.

It was another solid night for many markets across multiple asset classes. With much of the sell off and subsequent bounce technical in nature, we are at an intersting juncture ahead of tonights all important non-farm payrolls report.

The Australian Dollar was in the thick of the action over the past 24 hours. The combination of solid local data, USD weakness and a short squeeze, the AUD has broken through a down trend that has been in place since the start of the year when it hit a high around 0.81 cents.

Yesterday’s data was very solid with the trade balance surging north of $3bln. Upward revisions to the previous months surplus mean rising commodity prices helped drive the massive surplus. The surplus will certainly help with the the budget bottom line however won’t contribute heavily to growth for the quarter with export volumes steady.

Something worth keeping an eye on was the fall in imports, which also helped bolster the trade surplus. Imports of capital and consumption goods both fell last month and have been flat over the past six month which tells us a lot about the state of domestic demand.

It will be a big finish to the week. Today’s retail sales report will be closely watched for signs of any impact from falling house prices. Data this week showed price falls have accelerated and the risk of spill over to real activity is growing. Tonight the focus will be on nonfarm payrolls where the latest wage data update will be crucial for the outlook and many markets in the near term.

David Flanagan

Director - Interest Rate Markets