World commodity prices play an important role in Australia's terms of trade because commodity exports dominate commodity imports.

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Australia is a major exporter of commodities such as coal, iron ore, and natural gas. These exports dominate the country's trade balance, and fluctuations in world commodity prices can have a significant impact on Australia's terms of trade. If prices for these commodities increase, Australia's terms of trade improve, as the country can earn more for each unit of exports. Conversely, if prices for these commodities decrease, Australia's terms of trade are negatively affected, as the country earns less for each unit of exports.

World Commodity Prices Play an Important Role in Australia's Terms