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Exceptionally strong export data might not be enough to arrest a decline in the Australian Dollar.
Surprisingly strong exports in March offered the Australian Dollar a short-term boost on Thursday, but traders and economists are sceptical these dynamics will endure.
Australia's good exports surged 7.6% m/m in March, consistent with a global front-running of the April 02 'Liberation Day' tariffs in the U.S.
This marks the sharpest increase since the start of 2022, which caught analysts by surprise.
"AUD/USD increased after Australian trade balance data surprised to the upside," says Samara Hammoud, FX Strategist at Commonwealth Bank of Australia.
A surge in exports and a 2.2% drop in imports saw Australia's trade surplus for March widen by 141.9% from A$6.9bn in the previous month.
"Australia’s goods flow to the US seemed the most likely culprit, given that in January it jumped to about $6.0bn, around three times larger than the average seen in 2024, and in February it eased only slightly," says Mantas Vanagas, Senior Economist at Westpac.
However, the Aussie Dollar's gains soon reversed as the likelihood of trade offering a fundamental source of support for the domestic economy looks limited.
The GBP/AUD exchange rate recovers earlier losses to quote at 2.0857 and EUR/AUD recovers to 1.7717 from 1.7599.
Of note is the surge in gold exports to the U.S., which have seen a significant increase in recent months. This mirrors a trend elsewhere, including in the UK where the Bank of England's vaults, the biggest central bank gold depository in the world, are struggling to meet demand from the U.S.
The sustainability of such flows is shaky and will likely soon fade.
However, Australia's exports to China can't be ignored, with a recovery in commodities exports being the main driver in total exports, with metal ores and coal rising at a double-digit rates.
Image courtesy of Westpac.
There are clear risks to Australia's supportive trade dynamics going forward as the U.S. announced significant import tariffs on April 02 and China's economy will inevitably slowdown as trade with the U.S. declines, in turn impacting demand for Australian goods.
"Looking ahead, the near-term outlook for Australia’s trade flows remains highly uncertain. Strong global goods flow into the US is likely to dry out as the front-running of imports stops," says Vanagas.
A trade slowdown will add to mounting concerns for the Australian economic outlook given China is Australia's largest trading partner, accounting for almost a third of its exports in goods and services.
This week, the rating agency S&P Global warned that Australia’s AAA rating, in place since 2003, is now at risk. "How the elected government funds its campaign pledges and rising spending will be crucial," S&P said.
The call comes amidst an election campaign that sees all the major parties promising to 'splash the cash' if elected.
Despite a run of economic expansion since the early 1990s that has been the envy of the developed world, the country has not bounced back from the pandemic as rapidly as G20 peers and living standards have started to flatline.
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Productivity is in the doldrums, and public spending is now at its highest level since the Second World War.
The odds of a quickening of the pace in the Reserve Bank of Australia's interest rate cutting cycle is growing, which would help boost the economy. However, it would weigh on Australian bond yields, posing fresh headwinds to the AUD.