Thursday, 19 April 2012

The Terms of Trade Tumble – Interest Rates Need to Follow

The export and import price data for the March quarter confirm what the RBA has been saying for some time – the terms of trade are falling.
From what is now clearly a peak in the September quarter 2011, the terms of trade have dropped by 9.5% in the two quarters since.  To be sure, the terms of trade are still historically high, but a 10% downturn in a soft global environment is nothing to be sneezed at.
One of the more interesting parts of the recent market trends in that the Australian dollar has actually risen by around 1% while the terms of trade have fallen 10%. 
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