SYDNEY (REUTERS) - Australia's trade deficit blew out to a six-month high in December as prices for key resource exports tumbled at the end of a torrid quarter that dealt a hefty blow to national income.
The outlook was no more cheery with the latest plunge in oil prices rattling world markets and prompting the Reserve Bank of Australia (RBA) to concede a rate cut might be needed to stem any lasting economic damage.
"Record deficits persist as the collapse in commodity prices is only partly offset by a lower currency and strong export volumes," says George Tharenou, and economist at UBS. "The trade sector remains under pressure and a further currency depreciation would be helpful."
The sudden reversal of risk sentiment has seen the local dollar drop more than a full US cent in two sessions to touch US$0.7010, with notable losses on the safe-haven yen.
Investors are now pricing in a 36 per cent probability of a further cut in interest rates by April, rising to 76 per cent by July.
So far, the central bank has refused to be panicked by global events and held rates steady at 2 per cent after its first policy meeting of the year on Tuesday.
It would hardly be alone were it to ease. The Bank of Japan having already cut rates below zero this year and the European Central Bank flagging a possible expansion of stimulus for March.
An added vulnerability for Australia is its position as a major exporter of resources whose prices are in free fall.
The RBA's own index of commodity prices sank by a quarter in the year to January, dealing a hammer blow to export earnings, mining profits, wages and tax receipts.
The country's terms of trade, what it gets for exports compared to the cost of imports, looks to have dived around 5 per cent in the fourth quarter to hit a decade-low.
The affect was all-too apparent in trade numbers from the Australian Bureau of Statistics which showed the value of goods exports in December was the lowest in almost five years.
With total exports falling 4.7 per cent and imports down only 1.5 per cent, the country's trade deficit widened by nearly a third to A$3.5 billion (S$3.52 billion).
The one bright spot was service exports which climbed to record highs as more tourists were lured to Australian shores by a lower local currency.
In all, travel exports were over 15 per cent higher in December than a year before, a boost for jobs given the labour intensive nature of tourism.