New Zealand Trade Deficit Widens Despite Rise in China Exports

It is a relatively quiet Thursday session on the Asian economic calendar, with China and Hong Kong markets closed for the annual Dragon Boat Festival.

While the markets digested Fed Chair Powell’s first day of testimony on Capitol Hill, trade data from New Zealand drew interest this morning. Jitters over the Chinese economy and disappointing policy moves to support growth continue to leave the Kiwi sensitive to trade terms.

In May, New Zealand’s trade deficit widened from NZ$17,020 million to NZ$17,120 million. Economists forecast a trade deficit of NZ$17,236 million. However, the monthly trade surplus narrowed from NZ$236 million to NZ$46 million in May.

According to Stats NZ,

• Goods exports increased by NZ$189 million (2.8%) to NZ$7.0 billion, while imports increased by NZD292 million (4.4%) to NZ$6.9 billion.

A sharp increase in the exports of milk powder, butter, and cheese (+21%) supported the pickup in exports. However, there were falls in the export of crude oil (-52%), and logs, wood, & wood articles (-15%).

The import of aircraft and parts surged 748% (NZ$279 million), with mechanical machinery & equipment (19%) and vehicles, parts, & accessories (15%) contributing to the jump in imports.

However, fertilizer imports (-71%), plastics & plastic articles (-24%), and iron & steel & articles (-26%) were a drag.

By geography, exports to China rose by 18% in May, year-over-year, with milk powder, butter, and cheese accounting for the lion’s share of exports to China. Exports to the US were also Kiwi-positive, rising by 9.7%, while exports to the EU fell by 11%.

NZD/USD Price Action

Ahead of the trade data, the NZD/USD fell to a pre-stat low of $0.62003 before rising to a high of $0.62074.

However, in response to the trade data, the Kiwi rose to a post-stat high of $0.62065 before falling to a low of $0.62046.

This morning, the NZD/USD was up 0.07% to $0.6059.

Next Up

Looking ahead to the US session, it is a busier day on the US economic calendar. US jobless claims and existing home sale numbers will be in focus.

The jobless claims will have more influence, with the US labor market a consideration for the Fed. An unexpected jump in jobless claims would support the Fed doves and an extended pause on monetary policy moves.

While the numbers will draw interest, we expect Fed chatter to have more influence. Fed Chair Powell will give the second day of testimony on Capitol Hill. However, barring a deviation from the Wednesday script, FOMC member commentary will likely garner more interest.

FOMC members Waller, Bowman, and Mester are on the calendar to speak today.

After Fed Chair Powell’s first day of testimony and mixed signals from FOMC members, bets on a July rate hike eased, albeit marginally.

According to the CME FedWatch Tool, the probability of a 25-basis point July rate hike stood at 71.9% on Wednesday versus 76.9% on Monday. The chances of the Fed lifting the Fed Funds Rate to 5.75% in September decreased from 12.3% to 10.1%.