NZ Dollar Slightly Weaker on Wider-Than-Expected Current Account Deficit
THE TAKEAWAY: New Zealand third quarter current account deficit worse than expected > Data reflects effects of Asia slowdown and Eurozone-related uncertainty > NZD lower
The Kiwi was slightly lower after worse-than-expected current account data provided further evidence that the uncertain external environment is taking its toll on New Zealand’s export-dependent economy. Minutes after the release, the currency was down to 76.76 US cents from 76.85 US cents. However, the NZD still closed the trading day up 1.8 percent on the backs of a broad rally in risk-correlated assets.
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According to Statistics New Zealand, the island economy’s current account deficit widened to NZ$4.599 billion from NZ$0.844 billion in the 3rd quarter, confounding estimates for a NZ$3.75 billion deficit. The figures also reported a goods and services trade deficit of NZ$1.7 billion. For the year to the September 30, the current account deficit was 4.3 percent of GDP.
Tuesday’s trade figures reflect the effects of the external slowdown on the economy, which relies on exports for close to a third of its overall output. The recent cooling of the Chinese economy – the top destination for New Zealand’s dairy and commodity exports – and the ongoing uncertainty created by the Eurozone crisis, have both clouded prospects that export growth would help lead the country’s economic recovery from the February Christchurch earthquake. The domestic situation is also concerning, with this week’s Westpac Consumer Confidence survey showing a sharp drop in sentiment and the NBNZ gauges for activity outlook and business confidence similarly reflecting a bleaker outlook.
On the docket for Wednesday are the 3rd quarter GDP figures. Consensus estimates predict growth to accelerate to 0.6 percent from 0.1 percent on a quarterly basis, or 2.2 percent year-over-year. However, any acceleration in growth will reflect one-time factors related to the Rugby World Cup and are unlikely to provide a longer-term boost to the Kiwi.
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