Talking Points:
- The New Zealand Dollar gained more than 0.5 percent vs the US Dollar through morning trade
- New Zealand’s Trade Balance prints NZ$350M in May versus –NZ$100M expected and NZ$183M in April
- The positive data helped offset prior Kiwi declines on a dovish Reserve Bank of New Zealand statement
The New Zealand Dollar climbed 0.5 percent versus its US namesake after the country’s trade balance posted an unexpected surplus and the year-to-date, 12-month deficit contracted for the first time in 9 months (-NZ$2.57 billion). New Zealand’s trade balance was expected to come in at a deficit of 100 million in May; actual figures showed a surplus of NZ$350 million. Adding a further element of optimism, the previous month’s surplus received a positiverevision
An hour before the data release, the Reserve Bank of New Zealand (RBNZ) released a Statement of Intent for 2015-2018. In the statement, the central bank noted that the New Zealand Dollar remains unjustifiably expensive. In the aftermath of the release, the NZDUSD declined more than 0.6 percent alongside a slip for the local 10-year government bond yield. This suggests that the markets interpreted the statement as a threat forfurther easing from RBNZ coming up on the horizon. As of today, the markets are pricing in a 74 percent chance of a rate cut at the RBNZ’s July 22nd meeting.
Once New Zealand’s trade balance crossed the wires and topped economists’ expectations, the NZDUSD climbed more than 0.5 percent. The move higher almost erased Kiwi declines made after RBNZ’s statement of intent. Looking at New Zealand’s 10-year government bond yields after the trade balance, they appear relatively stable showing no major move to the up or downside. The positive data release also highlights the central bank’s data-dependent monetary policy stance. Despite the volatility, however, broader trend remains seemingly constrained as the data surprise is not extreme compared to past divergences and considering the market has become acclimated to similar RBNZ warnings at previous rate decisions.