Wednesday, August 04, 2010

Aussie Exports Soar

Australia continues to ride the commodity price boom. Seasonally adjusted exports in June 2010 rose by 7% compared to May 2010, and by more than 30% compared to June 2009.
As imports rose a more moderate 2% compared to May 2010 and 11% compared to June 2009.

The high increase in the value of exports is mostly driven by the dramatoc recovery in commodity prices from the lows of late 2008 and early 2009. Due to the use of futures, there is a time lag between the movements in quoted commodity prices and actual trade values.

As a result of this export boom, the trade surplus rose to a new record of $3.5 billion, compared to a surplus of $1.8 billion in May 2010 and a deficit of $400 million in June 2010.

This means that despite having higher real interest rates and thus higher real investment returns, Australia might have become a net capital exporter (Australia has a factor income and unilateral transfers deficit which in the past have been larger than any trade surpluses), something which normally implies that a currency is undervalued.

However, given the fact that the Australian dollar appreciated so much in value in 2009, and given the fact that the weakening U.S. economy could lower commodity prices, the short to medium term upside potential of the Australian dollar is very limited.

However, because of the higher yields, Australian bonds is nevertheless a long term winner.