Australia’s trade deficit is on the improve, and should continue to shrink as the Australian dollar falls.

The trade deficit narrowed to $787 million in August, from a deficit of $1.075 billion in July, Australian Bureau of Statistics figures show.

Exports fell two per cent while imports were down three per cent.

The figures showed a lower Australian dollar would support domestic economic activity by making imports less attractive, Commonwealth Bank economist John Peters said.

The Australian dollar has taken a dramatic fall in the past month, falling from 94 US cents to an eight-month low of 86.64 US cents.

But that means Australians will start paying more for imported goods and travel, Mr Peters said.

“This is always a double-edged sword for consumers who have basked in cheap imported goods and services on the back of the strong Australian dollar,” he said.

“These are now becoming more expensive as the Australian dollar tracks lower. So domestic producers are winners at the expense of consumers.

“Higher petrol, auto and clothing and footwear prices are perfect examples of this economic dynamic. As well, holidays abroad are more expensive for peripatetic Aussies.”

St George senior economist Janu Chan said a fall in imports in August was a further sign of weak domestic demand, while exports were being weighed down by soft commodity prices.

“The improvement in the trade balance over August was largely due to weakness in import growth,” Ms Chan said.

“It continues to signal soft domestic demand, and reflects the impact of weakening mining investment.”

Ms Chan said the falling Australian dollar was a good sign for Australia’s trade position.

“The Australian dollar depreciation and ongoing transition in mining from investment to production should see Australia’s deficit narrow further in months ahead, and help offset the impact of weaker commodity prices,” she said.