(Updates with comment from economist in fourth paragraph.)

Nov. 8 (Bloomberg) -- Australia’s trade surplus narrowed more than economists predicted in September as gold shipments abroad dropped faster than a slowdown in fuel imports.

Exports exceeded imports by A$2.56 billion ($2.65 billion), from a revised A$2.95 billion surplus in August, the Bureau of Statistics said in a report in Sydney today. The median estimate in a Bloomberg News survey of 24 economists was for a surplus of A$3 billion.

Australian trade balance may weaken further as the price of iron ore, the nation’s biggest export, declines and global growth slows in response to Europe’s sovereign-debt crisis. The Reserve Bank of Australia, which lowered interest rates last week for the first time in 31 months, said Nov. 4 that a fall in commodity prices appears to be under way.

“Lower commodity prices, especially for iron ore, dampened exporter receipts in September,” Katrina Ell, an economist at Moody’s Analytics in Sydney, said before the report. “Softer Chinese demand could see exports ease well into 2012.”

Exports fell 3 percent to A$27.3 billion, led by a 24 percent drop in non-monetary gold, today’s report showed. Imports declined 1 percent to A$24.8 billion on a 12 percent drop in fuels and lubricants, the report showed.

Rate Cut

RBA Governor Glenn Stevens lowered the overnight cash rate target to 4.5 percent from 4.75 percent on Nov. 1, saying after the decision that confidence is “subdued outside the resources sector.” Investors are betting there is at least a 92 percent chance Stevens will reduce borrowing costs next month, interbank cash-rate futures showed before today’s report.

China is Australia’s biggest trading partner and its demand for iron ore, coal and energy has driven the nation’s terms of trade, or export prices relative to import prices, to a record. On Nov. 1, the China Federation of Logistics and Purchasing said a manufacturing index fell in October for the first time in three months.

The central bank said in a Nov. 4 quarterly policy statement that “recent falls in commodity prices and the slowing in global demand suggest that the peak in the terms of trade has now been reached and indeed the recent significant falls in the price of iron ore suggest that the decline could be happening a little faster than earlier expected.”

Australia’s exports and a A$430 billion pipeline of resource projects helped spur the local currency to $1.1081 on July 27, the highest level since it was freely floated in 1983.

Europe’s fiscal troubles have weighed on the so-called Aussie in recent months. The world’s fifth most-traded currency fell 10 percent last quarter on concern Greece would default and trigger a repeat of the 2008 credit freeze after the collapse of Lehman Brothers Holdings Inc.

--With assistance from Daniel Petrie in Sydney. Editors: Brendan Murray, Victoria Batchelor

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net