Australian Trade Data Signals More Easing Ahead

(eToro Blog) For the second time in two days, Australia’s economic news draws investors’ focus, this time with the news that the country’s trade deficit grew to its widest level in more than three years. Analysts say that that is a clear sign that China’s economic slowdown is hitting the Pacific Rim economies hard and does not portend well for Australia for the quarter figures. That in turn raises the possibility that the central bank will be even more aggressive in its efforts.

Yesterday, the Australian central bank lowered its cash rate by 25 basis points and analysts believe more easing could come as soon as next month. Markets are already pricing in that possibility, with the probability rising to 66%.

According to the data released by the Australian Bureau of Statistics the trade deficit stretched to A$2.027 billion in August, the highest since March 2008, against consensus expectations of a shortfall of A$700 million. July’s deficit was also revised to A$1.530 million from A$556 million.

Analysts further point out that the trade deficit isn’t attributed so much to export volumes as it is to a significant drop in the price of Australia’s chief export, iron ore, which is used in the steel-making process. They point out that iron ore has dropped in prices to around $104, far lower than the $130 – $150 trading band held over the first six months of the year. Total exports fell 3.3%, with metal ore export falling 7% and coal exports falling 11%; imports fell by 1.3%, due primarily to a 13% drop in oil prices.

Gold, another ore mined out of Australia, is benefitting from the flood of liquidity unleashed by the world’s central banks. Gold is currently trading at $1,773.79 an ounce, but earlier this week hit a 10-month peak at $1,791.20 and analysts believe it could hit $1,800.00 in early 2013. On OpenBook, sentiment among gold traders is predominantly bullish, with 59% of OpenBook traders buying against 41% selling. Guru MIB1984, who is from Australia and among OpenBook’s premier gold traders with 7,300 followers and 1,062 copiers, has been going short as of late, and has gained an average of 10% in three short positions over the past day. The guru has allocated 98% of his portfolio to gold, which has provided him with a small 1.8% gain over the past month.

Copyright 2012 eToro Blog