Australia could go from a trade surplus to a trade deficit if commodity prices are flattened further by the downturn in global growth, UBS warned.
The present period of acute greenback strength is particularly problematic for commodity demand, because bulks, ores, metals and energy are priced in US dollars, which is also the world's funding currency in that borrowing is conducted in US dollars too.
Iron ore is down 15.4 per cent since the start of the year, to $US96.52 a tonne. Only lithium and thermal coal have managed to deliver positive returns as demand for battery technology surges and the global energy crisis supports supply constrained coal prices.by 0.2 percentage points to 2.7 per cent."Australia's strong trade and budget position has been supported by elevated commodity prices but we expect the terms of trade to fall ahead," said UBS economist George Tharenou.
Bank of America highlighted the diversification of Australia’s goods trade, with energy export earnings, driven by coal and LNG, now exceeding iron ore. At the same time, exports to other economies in Asia now exceed those going to China, its research found. “While the recovery will be gradual and partly driven by the reopening of China to outward bound travel, it will provide further diversification from the global manufacturing cycle over time," he said.
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