The July trade balance came in at a deficit of $0.8bn, which was well below market expectations of $0.1bn surplus (CBA (f): $-0.2bn). QIII has begun with Australia’s trade balance slipping back into deficit after being in surplus for the majority of 2013. We were anticipating the trade balance to fall back into deficit over July because of the impact the lower currency has on import values.
The key driver of the fall in the trade balance was the 4.1% rise in the value of imports over the month. Fuel and lubricant imports recorded the largest rise in the month, surging by 17.3% courtesy of the weaker AUD. The general commentary surrounding the lower Aussie dollar is concentrated on the support it will provide to domestic activity. But there are some negative aspects of a lower currency for the consumer. A lower Aussie dollar effectively means a cut to real spending power (i.e. the cost of the imported consumer goods basket will rise). Higher petrol prices are a perfect example.
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