Australia's trade surplus narrowed unexpectedly in January, with the Australian Bureau of Statistics reporting a surplus of 2,631M MoM, below the market consensus of 3,900M and down from December’s surplus of 3,373M [1][2]. Exports declined by 0.9% MoM in January, reversing a 0.9% rise in the previous month (revised from 1.0%), while imports rose by 0.8% MoM, compared to a fall of 1.8% in December (revised from 0.8%) [1][2].
Following the release of this data, the Australian Dollar weakened against both the US Dollar and the Japanese Yen. The AUD/USD pair attracted sellers to around 0.7065 during Asian trading hours, edging lower as the trade surplus missed expectations [1]. Similarly, AUD/JPY dropped below 111.00, trading around 110.80, as the Yen strengthened amid subdued market sentiment and safe-haven flows [2].
Geopolitical tensions in the Middle East, including Israel launching strikes across Iran and Iran's drone attack on an Amazon data center in Bahrain, have contributed to risk-off sentiment, supporting the US Dollar and Japanese Yen [1][2]. Reports suggested Iran’s Ministry of Intelligence signaled willingness to explore talks to end the conflict, but Tehran later denied this, leaving uncertainty about the conflict's duration and economic fallout [2]. Surging energy prices have raised concerns about growth and inflation, with Bank of Japan Governor Kazuo Ueda warning that escalating tensions could materially affect Japan’s economy and suggesting policy rates may remain unchanged for an extended period [2].
Despite the weaker trade data, the hawkish stance of the Reserve Bank of Australia (RBA) could underpin the Aussie against the USD. RBA Governor Michelle Bullock previously stated that inflation concerns are central and that a rate hike remains possible, with growing expectations for interest rate hikes potentially supporting the AUD [1]. Technical analysis for AUD/JPY indicates immediate resistance at 111.00 and support near 110.50, with traders watching for further developments in geopolitical tensions and energy prices [2].
CONCLUSION
Australia's trade surplus narrowed more than expected in January, leading to declines in the Australian Dollar against both the US Dollar and Japanese Yen. Geopolitical risks and rising energy prices have increased safe-haven flows, benefiting the Yen and USD, while the RBA's hawkish stance may offer some support to the AUD. Market sentiment remains cautious, with traders closely monitoring geopolitical developments and central bank policy signals.