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Australia Trade Deficit Shrinks to 14-Month Low in February

Tuesday, 2 Apr 2013 | 9:54 PM ET
James Lauritz | Photographer's Choice RF | Getty Images

Australia's trade deficit shrank by much more than expected in February to its smallest in 14 months thanks to higher prices for resource exports, a likely boost to profits and incomes that also gave the local dollar a lift.

Wednesday's figures from the Australian Bureau of Statistics showed the deficit on goods and services narrowed sharply to A$178 million ($186 million) in February, from A$1.2 billion the month before. That was well under forecasts of a A$1.0 billion shortfall and helped nudge the Australian dollar higher.

(Read More: Australia PM Appoints New Resources Minister in Reshuffle)

Exports climbed 3.3 percent overall to a seasonally adjusted A$25.64 billion, the highest total in eight months. Earnings from farm goods, coal, metals and iron ore all increase in the month thanks in part to rising prices.

In original terms, prices for coal and iron ore were higher in the month but volumes dipped, likely due to the impact of cyclones on shipping.

After touching a trough of $86.70 a ton last September, spot iron ore prices have since recovered to hover around $136 a ton. The steel-making mineral is Australia's single largest export earner.

(Read More: Aussie Mining Loses Its Lure for China Investors: Study)

Exports to China, Australia's biggest customer, were steady in February from the previous month, but still up 11 percent on February last year. That was a positive result since bad weather and the timing of the Chinese Lunar holiday can play havoc with shipments early in the year.

The news should be welcomed by the Reserve Bank of Australia (RBA) which is counting on a sustained rise in exports to support the economy when a long boom in mining investment plateaus later this year.

The central bank this week held interest rates steady at 3 percent for a third straight policy meeting but left open the prospect of further cuts should the economy stumble.

(Read More: Australia Central Bank Targeted by Hackers)

On the other side of the trade ledger, imports dipped 0.9 percent in February to A$25.82 billion mainly due to falls in capital goods and fuel.

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