The trade deficit dropped to $2.3 billion in September, from $2.7 billion in August, helped by a surge in iron ore exports..
Australia's economy is expected to have picked up pace in the September quarter after the trade deficit fell to its lowest level in six months.
The trade deficit dropped to $2.3 billion in September, from $2.7 billion in August.
Exports rose three per cent, thanks to a 7.9 per cent surge in iron ore exports by value, and imports rose two per cent.
Commonwealth Bank economist Diana Mousina said the improved trade balance was because of iron ore prices stabilising and the Australian dollar falling.
"A recovery in iron ore prices lifted export receipts over September," she said.
"On the services side of the ledger, the tourism balance continues to move in line with trends in the Aussie dollar."
NAB economist Tapis Strickland said the improved trade balance could still make a significant contribution to economic growth when September quarter national accounts are released on December 2.
He expects growth in the quarter to be 0.8 per cent, which would be a marked improvement on 0.2 per cent growth recorded in the June quarter, the slowest growth in two years.
Mr Strickland expects the trade deficit to fall further as new Liquefied Natural Gas projects begin production and start exporting.
A new plant in Queensland owned by Santos started operation in October, another owned by Origin will begin production this month and the giant Gorgon LNG facility is expected to start production in 2016.
"The increase in LNG exports should show up in the other mineral fuel exports category, and in September this category was broadly flat," Mr Strickland said.
The brighter economic outlook was one of the reasons the Reserve Bank held off cutting its interest rate at its November board meeting on Tuesday.
"While GDP growth has been somewhat below longer-term averages for some time, business surveys suggest a gradual improvement in conditions over the past year," RBA governor Glenn Stevens said.