News that Australia's monthly trade deficit ballooned to a record high in January shaved as much as half a US cent off the Australian dollar on Friday, sparking a retreat from a short-lived one-month high.
Still, the Aussie later recovered from its post-trade data lows, running into support around its 100-day moving average at $0.7434, and suggesting to technical analysts that it could consolidate around $0.7440/50 in the near-term.
Over the week, the currency still managed to notch up a gain of 0.5 percent.
Australia's trade balance blew out to a A$2.69 billion deficit in January, more than double market expectations, from a revised A$1.146 billion gap in December. A slump in mining exports caused an overall 7 percent fall in exports, while imports rose 2 percent. But economists said the data was neutral for interest rates, entrenching market expectations for no change to Australia's 5.5 percent cash rate in 2006.
"Economic growth will still re-balance towards investment and exports and away from consumer spending," said Joseph Capurso, economist at Commonwealth Bank. He forecast monthly trade deficits to narrow to an average of around A$1 billion in 2006. "Low inflation and uncertainty about how consumer caution will ultimately play out mean that the RBA will not be in a hurry to convert its tightening bias into action," Capurso said.
In addition, exports were expected to quickly recover, particularly in the commodity-rich state of Western Australia.
"The drop looks to be the result of a temporary production/shipping blip following Tropical Cyclone Clare, which hit north-west Western Australia in early January - exports from Western Australia were down sharply," said Tom Kenny, senior economist at Nomura. Kenny expected an upward correction in exports over the next month or so and a narrowing in the trade deficit, although he expected capital goods imports to remain high because business investment was likely to remain very strong.