Australia’s trade surplus fell to A$1.825 billion in August. This was much lower than the expected A$6.5 billion and down from A$6.612 billion in the previous month. In August, exports dropped by 7.8%, reversing the 2.5% increase from the month before. Meanwhile, imports rose by 3.2%, contrasting with a 2.4% decline in July. The AUD/USD exchange rate ticked up slightly to 0.6616. Over the past week, the Australian Dollar performed best against the Canadian Dollar. The Australian Bureau of Statistics will soon release more trade balance data, and the surplus is expected to shrink further, reflecting changes in net exports.

Influences on the Australian Dollar

Several factors influence the Australian Dollar: the Reserve Bank of Australia’s interest rate decisions, iron ore prices, the state of the Chinese economy, and domestic inflation levels. The trade balance is a key indicator of net export performance, which is important for currency value. This information provides insights into financial markets but is not a recommendation for financial activities. Investors should do their own research, as trading involves significant risks. FXStreet and the author are not responsible for errors, nor do they offer personalized investment advice. Australia’s trade surplus was much smaller than expected, dropping to A$1.8 billion in August. This shows a notable decline in our export performance, suggesting that the Australian dollar might face downward pressure in the weeks ahead. This decline is linked to a slowdown in China, our largest trading partner. Recent data revealed that China’s Caixin Manufacturing PMI for September unexpectedly fell to 49.8, indicating contraction and weaker demand for raw materials. Consequently, iron ore prices have dropped below $105 per tonne on the Singapore Exchange, adding more pressure to our export values.

Monetary Policies and Market Outlook

Given this data, the Reserve Bank of Australia is unlikely to raise interest rates, and the market is now anticipating a higher chance of a rate cut by early 2026. Although US private-sector job growth was weak last month, the latest US Core PCE inflation figure from late September stood at 2.9%, remaining above the Fed’s target. This difference in central bank outlooks suggests caution regarding the Australian dollar compared to the US dollar. For derivative traders, this outlook may indicate a potential drop in the AUD/USD. Buying put options on the Australian dollar allows traders to sell at a specified price, providing protection against a drop below critical levels, like the 0.6550 mark we saw in late September. Additionally, bearish positions through AUD futures contracts might also be worth considering to take advantage of this anticipated weakness. We saw a similar situation in the second half of 2023 when worries about China’s property sector lowered sentiment, pulling the AUD/USD from above 0.7000 down to around 0.6300. With the current mix of a poor trade balance and weak Chinese manufacturing data, this scenario feels familiar. This historical context reinforces the idea that the path of least resistance for the currency may be downward in the near term. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now