Australia reported a smaller than expected trade deficit for May as the resource-rich country enjoyed a record month of exports to China, another sign of its resilience to global headwinds.

Government figures out Thursday showed a deficit on goods and services of A$285 million ($292 million) in May, under forecasts of A$500 million. April's shortfall was also revised down to just A$26 million, from an initial A$203 million.

Australia enjoyed a 14 percent jump in merchandise exports to the world's second largest economy, its single biggest market, which at an unadjusted A$7.3 billion handily beat the previous record set in October last year, despite a slowdown in the Asian giant.

For the whole 11 months to May, exports to China were up 19 percent to A$69.6 billion, earning Australia a whopping trade surplus of almost A$30 billion.

"There had been worries that a slowdown in China had hit exports in the first quarter, but now there are clear signs that exports of bulk commodities are picking up again," said Brian Redican, a senior economist at Macquarie.

"That suggests it was problems on the supply side and not with demand," he added. "So these are another set of supportive numbers. There's some light amid the clouds."

The trade figures cap a week of upbeat Australian data with retail sales outpacing expectations in May, while approvals to build new homes surged by a record amount.

All of this has seen the market scale back expectations for how fast and far interest rates might fall. The Reserve Bank of Australia held rates at 3.5 percent at its policy meeting this week and sounded in no hurry to cut them again, noting that past cuts had already delivered a "material" easing.

Interbank futures now imply less than a 50 percent chance of a further cut in August, when it had been fully priced just a week ago.

Overnight indexed swaps, a measure of market expectations for the cash rate, now show rates at 3 percent in 12 months, up from 2.75 percent.

Reuters