With all the focus (and wound-licking) following the RBA, the trade data is a chance of being missed. This would be a mistake, for the trade data is telling you why the AUD is unlikely to break materially lower.
To see why, first think about what the currency does: it moves up and down to make sure that the current account deficit (the fact we buy more stuff from the rest of the world than we sell) is perfectly funded by the capital account (the fact that the rest of the world invests more money into AUD, than we invest into them).
So what does the trade data tell us? It is that the value of exports is growing despite the headline commodity price weakness. This is the sign that we are in ‘stage 3’ of the mining boom.
This might not be so good for employment (or tax receipts) but it is going to be good for measured activity (both nominal and real: these export charts are all nominal). As a result of a higher value of exports, we will not need to bring as much money in via sales of Australian financial assets — and all things equal, this means a stronger AUD.
The total value of exports was ~249bn for the year to March 2013. This is down 15bn (or ~5%) from the peak in Feb 2012, however the encouraging thing is that the total value of exports is rising again despite headline price weakness — this suggests a strong volume response. In 3m YoY terms, total values are +1.5%yoy.
Growth in the value of exports (measured in 3m YoY terms) has been led by growth of exports to China (+19% 3m yoy). The level of Chinese imports (12m rolling sum) is back near the record high of ~80bn that was reached in mid 2012. The ASEAN region is also growing strongly (+7% 3m yoy) and is also back near the all time high.
Japan is recovering (-4% 3m yoy) as the stimulus policies of the Abe government work, which is a welcome counter to the weakness in India (-24% 3m yoy). Korea appears to be stabilising, after a period of sharply slowing growth (-9% 3m yoy).
Even though European nations are not major Australian trading partners, in aggregate Europe is an important direct (and indirect) destination.
The weakness in the Euro area is clear from trade data: the value of exports to the region are down sharply (-15%). The situation in the UK is even more severe, with the value of exports to the UK having crashed by 43% compared with the first quarter of last year (there is possibly some irregular trade that has created this disturbance).
Overall, however, the value of exports is rising once again, led by growth in exports to China and the ASEAN region. It is doing so despite the strong AUD and weakness in commodity prices. All things equal that means the AUD can be a little stronger, as we do not need to discount AUD financial assets quite so much to get foreigners to buy them (= lend us money).
As phase 3 of the mining booms rolls on, i think we’ll see more of this. It is only a ‘divergence’ between export prices and the AUD if you don’t think about what links export prices and the AUD. The AUD should be buoyant in this phase, as the increase in export volumes compensates for price weakness and capital goods imports drop. Together, higher export values and reduced import values will tend to reduce the current account deficit and support the AUD.