AUD/JPY: Aussie Loses Ground as Trade Deficit Widens

The AUDJPY’s easing from a 40-month high is deemed to continue today as a larger than expected trade deficit in Australia is seen to weigh on the Australian dollar. The trade deficit in the Land Down Under widened more than economists forecast in November as stronger imports of transport equipment outpaced higher exports for iron ore.

The Australian Bureau of Statistics reported earlier today that imports outpaced exports by A$2.64 Billion compared with a revised A$2.44 Billion trade gap registered in October. The figure marked the largest deficit since March 2008 and well exceeded forecasts of a A$2.21 Billion shortfall for the month. According to the report, exports rose 1 percent to A$24.7 Billion, led by a 6 percent gain in metal ores and minerals. Nonetheless, imports inclined 2 percent to A$27.3 Billion anchored by a 6 percent rise in fuels and lubricants.

The data seemingly validate the Reserve Bank of Australia’s decision to slash interest rates four times last year as commodity prices retreated. In a research note before the release of the report, the Commonwealth Bank of Australia said that deflated resource commodity price due to the slowing global economy are taking their toll on Australia’s trade performance. Likewise, economists believe that the Aussie, which has remained strong despite lower commodity prices, also contributed to the large deficit. As such, the bank foresees continued deficits in the coming months.

Meanwhile, investor caution ahead of the US corporate earnings season for the final quarter of 2012 is believed to enhance the appeal of the Yen today. Asian stocks are following the heels of yesterday’s pull back in global stocks, with most bourses in the red in early trading. Investors are likely to focus on US firm Alcoa’s report card after the market closes today as the aluminum producer unofficially kicks off the stream of earnings reports. Considering these, a short position is advised for the AUD/JPY trades today.

Aviv N. Shapiro is a Senior Research Analyst and Business Development Officer for AlgosysFx.