Talking Points:
- New Zealand Dollar rallied against its major peers on July’s trade balance figures
- Exports rose 17 percent y/y as crucial commodities were sold at higher price levels
- The data was released one day after the government cut economic growth projections
What will drive longer-term FX market trends? See our forecasts here.
The New Zealand Dollar appreciated against its major counterparts after July’s merchandise trade balance crossed the wires. New Zealand’s monthly trade surplus came in at NZD85m as opposed to a forecasted deficit of 200m. This was also the first July surplus since 2012 and only the eleventh one since 1960. A rare event indeed.
The on-year reading showed the deficit continuing to narrow from –NZD3649m to –NZD3213m. Economists were expecting it to shrink at a much slower pace (-NZD3507m). This marks the narrowest trade deficit since December 2016 which also makes it this year’s smallest so far.
While exports fell to NZ$4.63b from NZ$4.70b, the decline was also slower than what was estimated at NZ$4.42b. In addition, exports rose 17 percent y/y. According to Statistics New Zealand, this was primarily led by higher values across commodities such as the crucial milk powder, butter and cheese.
New Zealand’s uplifting trade data arrived just one day after the government downgraded their economic growth and budget surplus projections ahead of a general election. As Senior Currency Strategist Ilya Spivak mentioned, traders read the news as limiting the scope for RBNZ tightening.
Today, the economic statistics seemed to help lift some of those prior concerns. As stated by the World Bank, merchandise trade accounted for about 37.7% of New Zealand’s GDP in 2015. Continued improvements in today’s round of data might just make those government forecasts sound all the less intimidating.
