New Zealand’s trade deficit narrows in October, trade balance to continue improving in H1 2017

New Zealand’s trade balance improved in October and came in better than expectations, with a stronger than anticipated export performance. New Zealand’s trade balance came in a deficit of NZD 846 million month-on-month. On a seasonally adjusted basis, the trade deficit was NZD 313 million, marking an improvement from the earlier two months.

Exports recorded a marked rise in October, growing 9.3 percent sequentially on a seasonally adjusted basis. The jump in exports was driven by the export earnings of fruit, dairy, seafood and forestry in October. New Zealand’s exports to China rose 7.9 percent; however, to Australia, the U.K. U.S. and South Korea it weakened.

Meanwhile, seasonally adjusted imports rose 2.1 percent on a sequential basis. Imports were underpinned by a one-off aircraft of NZD 254 million. Excluding aircraft, imports dropped 2.1 percent month-on-month in October, while the trend continues to be weak. Consumers seem to be indicating continued restraint outside of the odd new car purchases, noted ANZ in a research report. Imports of consumption goods dropped 5.3 percent year-on-year despite consumption indicators, such as house price gains, labor market strength and high consumer confidence, looking firm.

Imports of crude oil were weaker in October, thanks to a sequential decline of 19 percent in volumes, which imply certain catch-up next month, stated ANZ. The capital and intermediate goods imports both came in weak in October, and combined with weaker exports to developed markets and still high NZD TWI probably suggest certain headwinds for small manufacturers. This is further underpinned by subdued mechanical and electrical machinery equipment exports in October.

In order to examine the wide direction of New Zealand’s trade accounts from here, several of the moving parts require to be considered, such as the weather, the NZD, export commodity prices, inventories, global growth and import prices. At present, lower volumes in the livestock sectors are being countered by increased volumes from other industries. A continued improvement in New Zealand’s trade balance is likely in the first half of 2017, added ANZ. China’s renewed appetite for New Zealand’s primary products is the key.

At 04:00 GMT the FxWirePro's Hourly New Zealand Dollar Strength Index stood neutral at 11.7738, while Hourly USD Strength Index stood at neutral at 26.4557. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex