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Similar analyses appeared in the March quarter 1998, March quarter 2001 and March quarter 2003 issues of the discontinued publication, International Merchandise Trade, Australia (cat. no. 5422.0), as well as in the June 2005, December 2007, December 2009, June 2012 and June 2014 issues of International Trade in Goods and Services, Australia (cat. no. 5368.0). This article will be the first to include the Chinese renminbi (RMB) currency and will include a comparison of invoice currencies reported by country.
All values in this article are reported in the AUD. The methodology used to measure invoice currencies is described in the appendix at the end of this article.
An invoice currency is the currency in which an invoice for exported or imported goods is denominated. For exports the conversion is undertaken by the Australian Bureau of Statistics (ABS) or the trader using the Reserve Bank of Australia's (RBA) daily exchange rates. For imports, conversion of a foreign invoice currency value to the AUD is undertaken by the Department of Immigration and Border Protection (DIBP). Exchange rates applicable at the time of export or import are used for the conversion.
For the purpose of Australian export and import statistics, foreign currencies are converted to the AUD using the exchange rate applicable on the day of shipment. However, trading partners may choose a conversion for payment purposes using a different exchange rate or one applying on a different day if favourable conditions exist. In addition, some exporters and importers hedge exchange rates and calculate the value of the transaction using the hedged exchange rate rather than the prevailing exchange rate. For more detail see the further information section at the end of this article.
Graph 1 and 2 shows movements in the value of the AUD against selected currencies and the Trade-weighted Index (TWI) from September 2010 to September 2016.
The graphs show that over the period September 2010 to September 2016 the AUD depreciated against all selected currencies:
There has been an overall fall against the TWI of 11.0% between September 2010 and September 2016.
Within the six year period, considerable volatility was observed, which subsequently produced four distinct periods of change in the AUD.
Table 1 illustrates the movements of the AUD against the selected currencies during the four periods of change.
Table 2 shows the AUD value and percentage contribution of the major currencies used to invoice Australian exports of merchandise goods from the September quarter 2014 to the September quarter 2016.
(b) Figures have been rounded and discrepancies may occur between totals and the sums of the component items.
Over the two year period between September 2014 and September 2016, the USD consistently represented the highest proportion of merchandise export invoices denominated by value. In this period the proportion of exports invoiced in the USD decreased 1.3 percentage points, with a maximum of 83.7% invoiced in the September quarter 2014. The AUD consistently accounted for the second largest proportion and has been steady over this period, peaking at 16.1% in the December quarter 2015.
During the same period, the EUR accounted for a relatively small proportion of merchandise export invoices, ranging from 0.7% to 1.4%. Table 2 indicates that there are seasonal influences affecting the relatively high share accounted for by the EUR in the March quarters. This seasonality can be partially explained by the following two factors: Table 3 shows that 70.7% of exports classified to oil-seeds and oleaginous fruits (SITC 22) were denominated in the EUR; and Table 12a. Merchandise exports, standard international trade classification (1 and 2 digit), FOB Value available from the 'Downloads' tab of this publication, indicates that SITC 22 is impacted by seasonal factors in the March quarters. The NZD, GBP and JPY each accounted for less than 1%, with less than half a percentage point variation between the nine quarters.
EXPORT COMMODITIES BY CURRENCY
Table 3 lists the major currencies used to invoice Australian exports by selected SITC Rev. 4 divisions (2 digit) for the 2015-16 financial year.
The USD was the most frequently used invoice currency for the majority of the above SITC Rev. 4 divisions. 99.9% of coal, coke and briquettes (SITC 32), 99.2% of metalliferous ores and metal scrap (SITC 28) and 97.0% of gold, non-monetary (excl. gold ores and concentrates) (SITC 97) were invoiced in the USD. Similar to findings in the previous issue of this feature article, the USD was the primary currency used to invoice exports in thirteen of the twenty largest SITC Rev. 4 divisions denominated by value.
For five of the twenty largest export SITC Rev. 4 divisions, the AUD was the most used export invoice currency. Invoicing in the AUD accounted for:
Merchandise exports invoiced in the EUR had two substantial contributions of 70.7% (up 34.2% from previous article) for oil-seeds and oleaginous fruits (SITC 22) and 13.3% for professional, scientific and controlling instruments and apparatus, n.e.s. (SITC 87). Merchandise exports invoiced in the GBP also had two notable contributions of 11.1% for miscellaneous manufactured articles, n.e.s. (SITC 89) and 7.3% for beverages (SITC 11).
Medicinal and pharmaceutical products (SITC 54) was the only category with a substantial proportion of exports invoiced in the RMB (9.8%).
Table 4 shows the AUD value and percentage contribution of currencies used to invoice Australian imports of merchandise goods from the September quarter 2014 to the September quarter 2016.
Between the September quarters 2014 and 2016, the USD consistently represented the highest proportion of merchandise import invoices denominated by value, although the proportion declined over this period by 3.9 percentage points (57.2% to 53.3%). The AUD consistently accounted for the second largest proportion of import invoices, increasing from a low of 29.5% in the December quarter 2014 to 33.4% in the September quarter 2016. As was the case with exports, the percentage of merchandise imports invoiced in the AUD has generally moved inversely to the percentage invoiced in the USD over the same period.
The proportion invoiced in the EUR decreased from 7.6% in the September quarter 2014 to 6.1% in the June quarter 2015, before increasing again to 7.2% in the September quarter 2016.
IMPORT COMMODITIES BY CURRENCY
Table 5 lists the major currencies used to invoice Australian imports by selected SITC Rev. 4 divisions (2 digit) for the 2015-16 financial year.
The USD was the most used invoice currency for fifteen of the eighteen SITC Rev. 4 divisions identified above. 99.3% of petroleum, petroleum products and related materials (SITC 33), 80.0% of articles of apparel and clothing accessories (SITC 84) and 77.1% of furniture and parts thereof; bedding, mattresses, mattress supports, cushions and similar stuffed furnishings (SITC 82) were invoiced in the USD.
For the other three SITC Rev. 4 divisions listed, the AUD was the most used import invoice currency. Invoicing in the AUD accounted for 76.4% of medicinal and pharmaceutical products (SITC 54), 82.5% of road vehicles (incl. air-cushion vehicles) (SITC 78) and 46.8% of rubber manufactures, n.e.s. (SITC 62).
With the exception of gold, non-monetary (excl. gold ores and concentrates) (SITC 97), the NZD accounted for less than 2% of every SITC category. For SITC 97, 9.3% of imports were invoiced in the NZD.
When compared with the 2013-14 data presented in the previous feature article, the composition of the largest eighteen SITCs was broadly consistent. However, within certain SITCs there were some notable shifts. Of particular note were decreases in the use of the EUR for transport equipment (excl. road vehicles) (SITC 79) and power generating machinery and equipment (SITC 71). For SITC 79, the decrease in the use of the EUR (down 26 percentage points) was mostly balanced by a large increase in the use of the USD (up 29 percentage points). For SITC 71, the decrease in the use of the EUR (down 11.3 percentage points) was balanced by a similar size increase in the use of the USD.
RECENT YEARS COMPARISON FOR EXPORTS
Table 6 compares the proportion of total exports by country of final destination with the proportion of exports by invoice currency for the financial years 2011-12 through to 2015-16.
The USD and the AUD were the dominant currencies, contributing on average, 97.4% of the invoice currency used for Australian merchandise exports. The overall trend across the five years observed indicates a shift towards an increased use of the AUD for export invoicing, and conversely, a decrease in the use of the USD. The USD was consistently the most used currency, however when assessed by the country of final destination, the United States was far less significant.
Table 6 provides information regarding the use of third party invoicing, which is the practice of invoicing in a currency that differs from the currency of either the import or export country. For example, in 2015-16, the proportion of exports invoiced in the USD was 81.5%, compared with the proportion of exports destined for countries other than the United States (94.4%). Therefore, at least 82.0% of exports to countries other than the United States were invoiced in the USD.
The Eurozone is made up of the following countries: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain. The listed countries make up the total exports for European countries whose official currency is the EUR. Over the time period presented in Table 6, the average proportion of merchandise exports to the Eurozone (3.4%) was approximately three times the size of the average proportion invoiced in EUR (1.0%).
RECENT YEARS COMPARISON FOR IMPORTS
Table 7 compares the proportion of total imports by country of origin with the proportion of imports by invoice currency for the financial years 2011-12 through to 2015-16.
The USD was consistently the most used currency for import invoicing, followed by the AUD and the EUR. As with exports, Table 7 indicates that the proportion of imports invoiced in the AUD has increased over the period. Of the five years, 2013-14 was the only financial year where the proportion accounted for by the AUD decreased.
Imports invoiced in the USD consistently accounted for over half of all merchandise imports. In contrast, imports from the United States accounted for only 12.0% on average. When comparing Table 6 and 7, it is evident that a far greater proportion of exports were invoiced in the USD than imports and conversely, the proportion of imports from the United States was approximately double the proportion of exports to the United States. On average the USD and the AUD made up 86.9% of currency used for Australian imports over the five periods.
There are many possible factors that would influence an importer to invoice in one currency over another. One of these factors could be the value of one currency against another. For example, if the AUD depreciates against the USD, Australian consumers find imports invoiced in the AUD relatively more attractive than imports invoiced in the USD. Therefore it is reasonable to assume that an importer's choice of invoice currency could be influenced by movements in the exchange rates. Table 7 shows that between 2012-13 and 2013-14, the proportion invoiced in the AUD decreased from 31.4% to 29.5% and Graph 1 shows that, between 2012-13 and 2013-14, the AUD depreciated substantially against most currencies. In contrast, between 2014-15 and 2015-16, the value of the AUD appreciated and the proportion of imports invoiced in the AUD increased from 30.0% to 32.2%.
The proportion of imports from China has been steadily increasing over the five financial years presented, however the proportion invoiced in the RMB has remained fairly steady. However, in absolute terms, imports invoiced in the RMB have been increasing each year. Over the five year period, China contributed on average, 20.4% of merchandise imports, compared with the average for the proportion invoiced in the RMB of just 0.4%.
RECENT YEARS COMPARISON ON EXPORTS TO CHINA
Table 8 shows the proportion of exports invoiced in the major currencies from 2011-12 to 2015-16 for exports to China.
TABLE 8. EXPORT TO CHINA BY INVOICE CURRENCY. Financial Year(a)(b)
The two most dominant currencies for exports to China from Australia were the USD and the AUD. Between 2014-15 and 2015-16, the proportion of exports to China, invoiced in the USD decreased by 2.5 percentage points to 93.3%, while the proportion of the AUD increased by 2.3 percentage points to 6.1%.
For confidentiality reasons, the RMB and the EUR have been suppressed in both the 2011-12 and 2013-14 periods. Between 2014-15 and 2015-16, the proportion of imports invoiced in the RMB increased to a five year high of 0.5% of exports to China.
RECENT YEARS COMPARISON ON IMPORTS FROM CHINA
Table 9 shows the proportion of imports invoiced in the major currencies from 2011-12 to 2015-16 for imports from China.
TABLE 9. IMPORTS FROM CHINA BY INVOICE CURRENCY. Financial Year(a)(b)
(b) Figures have been rounded and discrepancies may occur between totals and the sums of the component items.
The USD was the dominant currency used for imports from China, averaging 78% of total imports to China over the five year period. Although the share accounted for by the RMB was relatively small, Table 9 shows that there has been a clear upward trend over the five year period.
There has been a decrease in the use of the AUD for Chinese imports from a high of 20.1% in 2012-13 to a low of 16.3% in 2014-15, with a subsequent marginal increase in 2015-16.
A feature article, The Terms of Trade and the National Accounts, released with the December quarter 2004 issue of Australian National Accounts: National Income, Expenditure and Product, Australia (cat. no. 5206.0) discusses, amongst other things, how exchange rates can influence the terms of trade.
For information on the Reserve Bank of Australia's (RBA) methodology of compiling the TWI see the article Developments in the Trade-Weighted Index Reserve Bank of Australia Bulletin October 2002 on the RBA website <www.rba.gov.au>.
For more information about hedging activity undertaken by importers and exporters in 2013, refer to Foreign Currency Exposure, Australia, March Quarter 2013 (cat. no. 5308.0).
MEASUREMENT OF INVOICE CURRENCIES
Information on the invoice currencies used in export and import transactions is collected by the Department of Immigration and Border Protection (DIBP) and passed on to the ABS with other merchandise trade information required for statistical purposes.
For exports, the ABS converts values reported in foreign currencies to the AUD using a representative mid-point of the buy and sell rates on the date of departure of the goods from Australia. The trader may report to the DIBP in the AUD.
For imports, the DIBP converts values reported in foreign currencies to the AUD using exchange rates applicable on the date of departure of the goods from the overseas country. The ABS receives details of the invoice currency together with the value of the import transaction in the AUD.
Some factors may complicate the measurement of invoice currencies. In Australian export and import statistics foreign currencies are converted to the AUD using the exchange rate applicable on the day of shipment. Some trading partners may undertake the conversion for payment purposes using a different exchange rate or one applicable on a different day. Additionally, some exporters and importers hedge exchange rates and calculate the value of the transaction using the hedged exchange rate rather than the prevailing exchange rate (see the further information section for more details about hedging activity).
Where figures have been rounded, discrepancies may occur between sums of the component items and totals. Percentage movements are calculated from data at the level of precision presented in this publication (i.e. $m) except for international merchandise trade tables.
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