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Surprise trade surplus should boost dollar

THE trade balance for October stayed in surplus, much to everyone’s surprise.

Forecasters had suggested the expected deficit for the month was anything from a low of $60 million through to $1 billion.

The figure that came in was a surplus of $324 million. The underlying detail of the figures is always interesting:

l Softer imports reflected the fact that domestic spending does appear to be slowing in Australia.

l Exports fell from their Olympics-induced high by only $400 million from their spike in September of $1.4 billion.

l Exports (excluding Olympic effects) leapt by 6.8% in October on top of September’s 5.8% rise. Exports are now 30% up on a year ago.

l Most of the export strength is coming from resources (excluding gold) including crude oil and metals across the board (especially aluminium in October).

Does this mean that the export boom has been induced by the low $A?

Dennis Mahony, from BNP Paribas says Yes and No.

The Yes part is the accounting effect – a low $A is boosting receipts in $A terms through the roof. However the No part is because almost all the rise is concentrated in resource exports.

The resource exports are both lumpy and supply determined suggesting that the across-the-board boost economists normally look for in exports as a response to the super-low $A is still to come.

A super-low $A would normally show through in boosts to exports of manufactured goods and services rather than purely in commodities.

This would all suggest that the economy will continue to perform well especially when the boost to exports flows through to other areas.

BNP Paribas is still forecasting a GDP growth rate of 4.1% for 2000-2001 and 4.25% for calendar 2001.

Additionally the trade surplus figures are seen as the possible catalyst for redirecting the $A upwards to their mid-2001 target of $US0.56.

So all in all, the figures are pleasing.

A surprising result but one that will push our dollar back to some reasonable levels in the near term, hopefully.

Now all we need to do is sort out the American presidential fiasco and we will see some re-rating of fundamental values occur in markets.

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