NZ Trade Surplus Widens to Record, Improves Outlook on Productivity and Exports

Statistics New Zealand’s report of the newest trade data for April shows surpassed expectations for the domestic economy as trade balance hit a record NZD 1.113 billion, powered by recovery after the February Christchurch Earthquake. Despite the New Zealand dollar near record highs against the US dollar, exports swelled to a record NZD 4.65 billion on greater demand for soft commodities. Previous trade balance and exports for March were also revised higher.

A recovery in major sectors of the economy can be attributed to a relaxed central bank policy after February’s earthquake, including a drop in its Official Cash Rate by 50 basis points to 2.50% and subsequent large government funding of rebuilding efforts. This combination of easier borrowing and more available government money for industries helped primary sectors rebuild at a quicker pace.

A jump in soft commodity prices, including daily, meat, wool and lumber, was the primary price driver behind the record amount of exports. However, the effects of the strong New Zealand dollar can be seen to take a toll on transactions with key partners, including Australia and China. Despite continued demand for food products, exports to China fell to NZD 583.1 billion compared to NZD 634.1 billion in March; Exports to Australia fell to NZD 813.0 billion from NZD 981.3 billion. Bucking the trend of major trading partners was Japan, which bought NZD 383.5 million in Kiwi goods in April compared to 278.5 dollars worth in March on reconstruction demand.

Imports, led mostly by fuel and energy, dropped from NZD 4.04 billion to NZD 3.54 billion, but still represent a 7.2% increase from one year ago. Statistics New Zealand also revealed greater imports in electronics and base metals.

Although the Kiwi dollar’s action against its American counterpart was relatively small immediately after the data release additional confidence in the island’s economy helped push it to a record high around one hour after the release. This strength follows on the heels Finance Minister Bill English’s statement that the economy is “hooked to the China-Australia train,” which represents a change from his previous, more cautious stance that the high kiwi dollar may be hindering the economy. The market is continuing to show renewed confidence in Aotearoa, as investors continue to buy the dollar for both its yield and better macroeconomic expectations.

NZDUSD 5 minute chart; white arrow indicates release. Chart generated with FXCM Strategy Trader.

Written by David Liu, DailyFX Research