Daily Commentary BY THE CURVE TEAM –

Trade Balance Swings Up

5th of February, 2021

The trade balance improved over December, with a few factors having disproportionate effects.

The trade surplus rose to $6.8 billion from $5 billion, with exports up 2.8% and imports down 2.4%. Following the 9.3% rise in imports in November, the slight drop in imports means they have still recovered off covid lows.

Exports rose off the back of an increase in metal ores of 3.2%. Iron ore prices were up over the period from rising demand in China and restricted supply in Brazil.

Coal prices were also at 4-month highs. China also now accounts for 38% of our exports, despite the ongoing trade tensions.

It is also worth noting that import and export values are still well below pre-covid lows.

Overnight the Bank of England instructed banks to prepare for negative interest rates in six months’ time. This does not imply they will go negative but suggests the Bank of England want the option should they deem it is required.

This follows updates from the RBA over the week, which implied that overseas central bank decisions weighed on the RBA. That in turn means if the Australian economy recovers quickly it doesn’t necessarily mean rates will go up.

The rest of the world putting downward pressure on rates via QE or negative rates means the RBA would have to decide whether to let the Australian Dollar rise or counteract this with more easing themselves. It means our interest rates and monetary policy will be interdependent with the rest of the world for some time.

Today, the RBA releases their Quarterly Statement on Monetary Policy, which will contain its updated economic forecasts with upside and downside scenarios. Retail sales for January are also released.

Josh Stewart

Associate - Money Markets