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NZ dollar falls vs Aussie on wider January trade deficit

Tuesday 27th February 2018

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The New Zealand dollar fell against its trans-Tasman counterpart after traders were surprised by local trade data unexpectedly showing the biggest January trade deficit since 2007. 

The kiwi dropped to 92.78 Australian cents as at 5pm in Wellington from 93.10 late yesterday. The local currency fell to 72.76  US cents from 73.18 cents yesterday as investors await clues on the future track for US interest rates in Federal Reserve chair Jerome Powell's debut testimony to Congress later in the global trading day. 

Statistics New Zealand figures showed the January trade deficit reached $566 million, much wider than the net trade balance of zero expected by economists as export values were weaker than expected and import values - mostly petroleum and petroleum products - were stronger. The release saw an immediate reaction in the kiwi/Aussie cross rate, although ASB Bank economists said they expect some of the weakness in the trade data is temporary and the annual deficit will narrow over the course of the year.

The kiwi also lost ground against the greenback as markets "fine-tuned their positioning" ahead of Powell's testimony, Westpac Banking Corp head of NZ strategy Imre Speizer said. "It's a broader move than just kiwi-specific and it looks like the dollar has just perked up a bit," he said. There are "a lot of expectations and tensions" around Powell's testimony pushing the dollar around, he said. 

The Federal Open Market Committee is expected to raise interest rates at its March meeting and at least two other times this year, according to the latest forecasts. 

Speizer also noted Powell will face questions and answers and there will likely be at least one pointed question about his latest views on the projected rate path but he is "unlikely to give away anything new" and it may end up being quite a neutral affair for markets. 

New Zealand's two-year swap rate rose 2 basis points to 2.17 percent while 10-year swaps were unchanged at 3.20 percent.

The trade-weighted index was at 74.62 from 75 yesterday. The local currency traded at 52.12 British pence from 52.28 pence yesterday and fell to 59.04 euro cents from 59.43 cents. It decreased to 77.84 yen from 77.96 yen yesterday, and fell to 4.5889 Chinese yuan from 4.6204 yuan.


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