For the last two or three weeks the AUD has been all about industrial commodities and precious metals. The Bloomberg Commodity Index, which tracks returns on 22 raw materials, posted an unprecedented 14 days of gains to Wednesday, closing at the highest since February last year. What is particularly striking is that the global commodity index has not had a down day since the Fed hikes rates in December. This remarkable run helped push AUD/USD up to a high overnight of 0.7868; the highest since October 20th. A poor set of monthly trade figures has since taken some of the shine off the Aussie Dollar and it is around a quarter of cent below its overnight high.
The trade figures were pretty disappointing. October’s tiny surplus was revised away to show a monthly deficit of -$302m. Consensus expectations for November were for a surplus of around $550m. Instead, the balance on goods and services was a deficit of -$628m. Taking the two months together, the overall ‘miss’ compared to expectations was a whopping $1.5bn.
Exports were largely flat on the month - just $141 million higher at $31.8 billion - as a two per cent rise in non-rural goods such as iron ore helped offset a fall in cereals and grain, as well as a 23% drop in notoriously volatile non-monetary gold exports. A 26% rise in metals exports was also partially offset by a two per cent drop off coal, coke and briquettes, as China's environmental focus weighed on thermal coal volumes. Imports, meantime, were up 1.0%, or $467 million, driven by an increase in capital goods, with aviation and telecommunications equipment leading the gains.
We have not seen back-to-back monthly deficits in Australia since October 2016 and unless there is a substantial pick-up in December (which is still possible given what happened to commodity prices during the month), then net trade could be an overall drag on Q4 GDP.
The Australian Dollar opens in London this morning at USD0.7840 with GBP/AUD at 1.7295.