THE TAKEAWAY: New Zealand trade deficit widens year to date > Broad slowing in Asian economies and strong exchange rate likely drivers behind deficit > Risk-linked Kiwi little Changed

The New Zealand Dollar was little changed versus the U.S. Dollar as the trade deficit for the NZ economy widened to -NZ$866 million in August, down from -NZ$786 million year to date. Exports sunk by NZ$73 million for the month while imports increased by NZ$15 million.

The widening trade deficit may partially be due to a broad slowing in Asian economies and partially due to a strong exchange rate as foreign buyers must pay more to obtain units of Kiwi. However, the up-tick in imports may be due to “the elevated level of the New Zealand dollar which has made imports cheaper and put downward pressure on tradable inflation,” according to the 2011-12 annual report released by the RBZN early this week.

The Kiwi appears to be firmly anchored to risk appetite trends as measured by key equity benchmarks such as the S&P 500. An overall push towards “risk-on” may elevate the high-yielder whereas broad risk aversion in the financial markets could exert downward pressure.

NZD/USD, Daily Chart

NZ_Trade_Deficit_Widens_as_Strong_Rate_and_Ebbing_Asian_Economies_Likely_Drivers_body_Picture_1.png, NZ Trade Deficit Widens as Strong Rate and Ebbing Asian Economies Likely Drivers