Australia boasted its second-largest trade surplus on record in August as demand from China and Japan drove exports of iron ore and coal, providing a vital boost to economic growth ahead of the latest bout of turmoil on global markets. The resource-rich country reported a surplus on goods and services of A$3.1 billion ($2.9 billion) in August, up from A$1.8 billion in July and way above expectations.
Tuesday's data also showed a sharp 11.4 percent rebound in approvals to build new homes as some large apartment projects went through. That should be some comfort to the Reserve Bank of Australia (RBA) as it weighs what to do with interest rates at its monthly policy meeting on Tuesday. All 22 analysts in a Reuters poll expected it to keep rates at 4.75 percent, though the risks of a future cut are growing given the gloom engulfing markets.
Interbank futures imply around 71 basis points of cuts in the cash rate by Christmas, and 155 basis points over the next 12 months. Fears of a Greek default and resulting banking crunch played havoc with markets on Tuesday with the Australian dollar sliding to a year low of $0.9476 despite the strong data.
The currency has now sunk 14 percent in just the past couple of months, while Australia's main share index has shed 19 percent so far this year. While investors fret about a possible return to recession in the United States and European Union, Australia is lucky to be far more leveraged to the still-strong Asian region.
In particular, industrialisation and urbanisation in China and India are generating huge demand for coal and iron ore, Australia's two biggest exports. Tuesday's data showed exports of coal jumped 14 percent by value in August as supply recovered from flooding early in the year. Volumes of iron ore enjoyed double-digit gains so that total exports surged 8 percent to a record A$28.4 billion.
Imports rose by 3.3 percent, mainly on the back of consumer goods and oil, pointing to resilient domestic demand. Over two-thirds of Australia's exports now go to Asia, with China alone accounting for 26 percent of total exports. The EU takes 7 percent and the US less than 4 percent. That is fortunate as Chinese demand looks to have remained resilient in recent months, even as global markets nosedived.
That demand helped lift the RBA's index of commodity prices to record peaks in both July and August, having climbed 25 percent over the preceding 12 months. The ratio of export to import prices, known as the terms of trade, are at their highest in at least 140 years. At this level, Australia gains extra income worth between 12 and 15 percentage points of its A$1.3 trillion GDP every year.