New Zealand bonds close higher after trade deficit widens in September

The New Zealand bonds closed higher Thursday after the country’s trade deficit for the month of September widened as compared to that in August, thus wooing investors away from riskier assets.

At the time of closing, the yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell 1 basis point to 3.03 percent, the yield on 20-year note also slipped 1 basis point to 3.57 percent and the yield on short-term 2-year ended 1 basis point lower at 2.06 percent.

The trade deficit was NZD1.1 billion in September, again coming in below market expectations of NZD900 million. Exports rose 4.2 percent m/m (sa) but were outdone by imports, which lifted 4.9 percent m/m (sa). As expected, dairy export volumes bounced back strongly (+37 percent m/m sa) from a similar-sized fall last month, while seasonally adjusted fruit exports were down 22.7% m/m. Imports were again strong at NZD4.9 billion sa.

Export values lifted 9 percent y/y, although the picture was mixed for some of the recent drivers. Dairy values are up 28 percent y/y. The standout performer of the dairy complex was butter, with export values up 43 percent y/y despite lower volumes. The main drag on exports was kiwifruit, which saw a 35 percent fall y/y due to weather conditions having brought forward the timing of the season for the higher-value gold variety, while the traditional green variety has seen lower volumes after two bumper seasons prior. In other major groups, forestry exports continue to grow on strong Chinese demand; meat export values rose 9.2 percent y/y.

Import values lifted 4.9 percent m/m (seasonally adjusted) and 1.4 percent y/y. Intermediate goods imports were resilient at +5.6 percent y/y; a strong result considering it included a 14 percent y/y fall in crude oil. It reflects solid domestic manufacturing and strong local construction/infrastructure activity. Machinery and plant imports continue to surge with a 16 percent y/y lift in September. This likely reflects companies continuing to invest in equipment to overcome skilled labor shortages and to boost productivity. Consumption imports increased 4.4 percent y/y (2.9 percent y/y in August) consistent with a solid labor market and resilient consumer confidence.

Meanwhile, the NZX 50 index closed 0.09 percent lower at 8,122.67, while at 05:00GMT, the FxWirePro's Hourly NZD Strength Index remained neutral at -3.26 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest