The current account deficit narrowed to $12.7 billion in the June quarter from a record $19.5 billion deficit in the March quarter, as higher coal and iron-ore prices bolstered coffers.

The gap shrank to its smallest in three years, but was larger than the $11.7 billion deficit forecast by economists surveyed by Bloomberg News.

The goods and services trade balance swung to a surplus of $559 million from a deficit of $7.31 billion.

The net income deficit widened to $13.28 billion in the second quarter from $12.49 billion in the previous three months, today's report showed.

"This big improvement in the trade balance was thanks to soaring exports, up 20pc over the quarter owing to a 26pc surge in non-rural exports; this we attributed to the steep rise in contract prices for coal and iron ore, Australia's two largest export commodities," said JPMorgan economist Helen Kevans in a note to clients.

"Imports were up 3pc in first quarter, slowing significantly from 8pc (growth) in the previous quarter, and indicative of the recent softening evident in domestic demand."

A shrinking trade gap may act as a boost to economic growth, whose pace will become clear Wednesday when the ABS releases the gross domestic product for June.

Analysts expect annualised GDP growth to ease to 2.9pc, an 18-month low, for the quarter from 3.6pc in March, as the higher interest rates and slumping domestic demand begin to take their toll on the economy.

The ABS estimates the narrower trade gap will trim 0.1 percentage points from second quarter GDP growth figures.

The dollar was little changed after the ABS published the trade figures, and trading recently at about 85.43 US cents.

The central bank has been trying to squeeze consumer and business investment with 12-year high interest rates of 7.25pc, which has also helped to curb demand for imports.

The RBA will be focusing more on the recent weakness of the domestic economy as opposed to the outlook for inflation, said Ms Kevans.

"For the RBA, the numbers won't have a huge implication for the decision tomorrow," she said.

"We expect the RBA will cut the cash rate."