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Australia export surge curbs trade deficit

SYDNEY: Australia's trade deficit narrowed sharply in February, aided by an exports surge that outpaced imports and hardened the case for a rate rise next week.

The trade report issued on Thursday showed there was still momentum in the domestic economy, while demand from Asian trading partners picked up after recent softness, prompting a 6.4 percent jump in exports. Imports rose 1.7 percent.

February's balance of goods and services recorded a deficit of just A$908 million (US$554 million), the low end of market expectations, and compared with median forecasts for a A$1.2 billion shortfall.

The deficit was well down on the revised January deficit of A$1.345 billion, driven by a 16 percent spike in rural goods exports, a seven percent rise in non-rural goods exports, and firmer commodity prices.

"That is a good trade result," Treasurer Peter Costello said.

"What it's showing is as the world starts to grow stronger again, Australia's exports will pick up," Costello said.

The improving export picture supports the Reserve Bank's view of a brighter world outlook underpinning domestic growth, and added to expectations the central bank will raise cash rates after its monthly board meeting next on Tuesday. Its decision could be announced as soon as Wednesday.

Analysts are leaning towards a rate rise of 25 basis points to 5.75 percent, mainly because the RBA has dismissed recent soft economic figures as a blip.

IMPORTS STILL STRONG

"The rise in imports says that the domestic economy retains a reasonable momentum and the most likely outcome remains a rate rise following the board meeting," said Commonwealth Bank chief research economist Michael Blythe.

Asked if the trade data raised any concern about the need to raise local rates, Costello said rising global interest rates were a sign of economic strength.

"As world growth picks up ... interest rates around the world have moved up," he said. "It is not altogether a bad thing."

Job vacancy figures also released on Thursday pointed to further strength in the labour market, with a 9.3 percent increase in the three months to February.

Analysts said the trade figures have shown a stark turnaround in Australian merchandise goods exports to Asia, rising 41 percent over the year to East Asia and 29 percent to Japan in original terms.

"The trade numbers provide further evidence that Australia's trade and current accounts are on the mend and quicker than many expected," said HSBC senior economist Grant Fitzner.

The better than expected trade report gave a brief boost to the shaky Australian dollar, taking the currency to its high for the session of 61.37 US cents. But by, the dollar was little changed on the day trading at 61.15 cents.

The currency is still at the mercy of key retail sales figures on Friday, which will need to show a solid bounce to confirm that the recent soft patch in economic figures is merely a blip.

It will cement market expectations of whether the RBA will pull the rates trigger next week or wait till May, soon after first quarter inflation data is released.

But one noted bear suggested the worst may be over for the currency. "A good March trade number would confirm the Australian dollar had finally found a price level where Australia can compete effectively in the new global village," said Clifford Bennett, BNP Australia senior treasury strategist.-Reuters