Australian trade deficit blows out
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The Australian currency rose more than 34 percent against the dollar last year.
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SYDNEY, Australia (Reuters) -- Australia's trade deficit widened 48 percent in December to an eight-month high as a strong Australian dollar ate into export earnings and fuelled import growth.
The unexpectedly large deficit -- the third biggest on record -- reinforced a market view that the strong currency would restrain the central bank from moving up interest rates in its first review of the year, due Tuesday.
The Australian currency's 34 percent gain against the dollar last year has cut export returns despite a global pick-up and rising Australian farm production after the end of a drought.
The seasonally adjusted trade deficit of Aust $2.55 billion ($1.93 billion) in December was well above both market expectations for a A$2.0 billion deficit and November's A$1.72 billion shortfall.
The Reserve Bank of Australia holds its first board meeting of the year Tuesday, having tightened by a quarter of a percentage point in both November and December to try to curb ballooning household debt associated with a prolonged housing boom.
Sixteen out of 21 economists polled by Reuters said they expect no rate rise this week, as the central bank took time to see the impact of previous tightening.
"(The RBA) is likely to hold interest rates steady simply because of ongoing low inflation, and there are signs the housing market is weakening," said Stephen Koukoulas, chief strategist at TD Securities.
"The very strong Australian dollar is also a factor weighing against the RBA hiking interest rates on this occasion."
Exports fell 2 percent, while imports -- made cheaper by the stronger exchange rate and supported by buoyant domestic demand -- rose 5 percent.
Other data Monday showed Australian inflation remained benign while the country's manufacturing continued to grow.
"On the export side, services and some of those non-rural goods are a fair bit weaker and they are the two areas you would expect to see the impact of the higher Australian dollar coming through," said Brian Redican, senior economist at Macquarie Bank.
The Australian currency edged higher after the data but quickly ran into sellers to stand around 76.30 cents by early afternoon.
The currency last month struck a six-and-a-half year high just above 78 cents.
An unofficial inflation measure, issued by TD Securities and the Melbourne Institute, showed consumer prices rose just 0.4 percent in December, for inflation to be 2.3 percent over the year, well within the Reserve Bank's 2-3 percent target and broadly in line with the official inflation rate.
Australian manufacturing activity grew in January, industry data showed.
The Australian Industry Group-PricewaterhouseCoopers performance of manufacturing index rose to 56.8 from 56.6 in December. Above 50 indicates a growing manufacturing sector.
"Strong domestic demand has so far cushioned the full impact of the current export weakness, the appreciation in the Australian dollar and interest rate increases," said Australian Industry Group Deputy Chief Executive, Heather Ridout.
Copyright 2004
Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
