Australia’s Q4 trade prices point to improving terms of trade, offering modest support for national income and the AUD. Australian trade price data for the December quarter pointed to a notable improvement in the external backdrop, with export prices rebounding sharply and import prices rising unexpectedly, lifting Australia’s terms of trade. Taken together, the data imply a positive shift in Australia’s terms of trade, which measure the ratio of export prices to import prices. When export prices rise faster than import prices, the terms of trade improve, meaning the country earns more for its exports relative to what it pays for imports. Historically, sustained rises in export prices — particularly for bulk commodities — have been closely associated with periods of AUD strength.