Dollar sharply higher in afternoon trade

The local unit was more than half a cent higher in late afternoon, boosted by record trade data.

Australian one dollar coin sitting on a twenty dollar note. Shallow depth of field. Picture: istock

The Australian dollar rallied strongly on Thursday on news of a record trade surplus in December.

At 2.40pm (AEDT), the local unit was at US76.37 cents, compared with US75.66c late on Wednesday.

Australia posted a seasonally adjusted trade surplus of $3.5 billion in December, notching a new record, the Australian Bureau of Statistics said earlier in the day.

The December result compared with a surplus of $2.04bn in November and a previous record surplus of $2.24bn in February 2009. The figure was sharply higher than analysts’ expectations of a surplus of $2.2bn.

The value of exports rose by 5.0 per cent in December from November helped by a 14 per cent increase in coal and a 10 per cent rise in iron-ore shipments, while imports rose by 1.0 per cent, the statistics bureau said.

Economists said the data reduced the threat of recession in the economy, which had contracted in the third quarter.

“We saw a massive trade surplus and it lit the fire under the Aussie dollar,” said Greg McKenna, chief market strategist at AxiTrader.

“This trade surplus is the catalyst that the Aussie dollar has been waiting for,” he added.

Australia’s trade balance has swung quickly from deficit to surplus on the back of strong gains in iron ore and coal prices in 2016, while the volume of natural gas exports has also started to rise sharply.

The price for iron ore and coal, among Australia’s top exports, increased sharply last year, while many other commodities such as copper also rose.

Tom Kennedy, an economist at JPMorgan said more export capacity is due to come on line with several large LNG projects expected to be completed in the coming months, and production capacity to increase steadily through 2017.

As a result, JPM retains the view that net trade will continue to support real GDP in the year ahead, as well as in early 2018.

Dow Jones newswires