The commodity cycle and the trade balance
Australia’s trade balance for August is a good illustration of the macroeconomic impact of the current commodity price boom. Exports jumped (left chart) pushing the trade surplus to unprecedented levels (right chart).
Australia is a very large producer and exporter of iron ore. Economists tend to consider that the volatility of its economic cycle and by extension, of its currency, is driven by this commodity price cycle.
This time around the story diverges a bit as iron ore exports fell in August but note that they were more than offset by the sharp rise in other commodity exports like coal and natural gas (graph below ).
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