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Australian trade deficit higher than market consensus

Posted by Adrian on March 4, 2008

It would be fair to assume the decoupling theory (America goes into recession, others countries do not follow, namely Asia) is all but a fading fallacy – a sloppy hypotheses of the free market theory of disconnecting from loss and connecting too gain. As a uniformed and global economy, with America (although now in recession) still operating as the biggest economy and consumer base in the world. The effects of a US recession will be global. An indicator of global slowdown (lead by the US) is shrinking demand on export markets.

Asia have been reporting large trade deficits (South Korea’s trade deficit came in at 13.97 per cent, highest since 1997). The Australian Bureau of Statistics has reported a huge increase in the Australian trade deficit, it now sits at massive 19.4 billion (market consensus was for 17.8 billion) – this could indicate that inflation is high, even if consumer retail spending is slowing. Australia like Asia is grappling with the high costs of oil and inflation on food. The AUD is now overvalued and is slightly overbought sitting (current) 0.93 Carry trading may now get overshadowed with risk aversion, when it appears that an economy is slowing and inflation is picking up (Australia) – which would mean the high yield currencies may get dumped.

But Australia, like Ireland and Spain (and other highly leveraged world property markets) has a hugely inflated property market.  A sharp decline cannot be ruled out.

The Reserve Bank of Australia will lift interest rates today (0.25%) adding to the overall cash rate of 7.25%, I suspect a spike in buying of the AUD, but not a massive rally and certainly not pushing it to anywhere near the $1.00 USD mark. As mentioned risk aversion will come back into play.

Please refer to some early posts regarding Australian hyperinflation and the Australian trade deficit.


One Response to “Australian trade deficit higher than market consensus”

  1. […] Original post by Adrian […]

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