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NZ dollar hits 1-month low on deeper trade deficit, Aussie also eases

Monday, September 26, 2016 - 11:16
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The New Zealand dollar kicked off the week on a sombre note on Monday, falling for a third straight session after data showed a surprisingly large jump in the country's trade deficit, while its Australian counterpart also ticked lower.

[SYDNEY] The New Zealand dollar kicked off the week on a sombre note on Monday, falling for a third straight session after data showed a surprisingly large jump in the country's trade deficit, while its Australian counterpart also ticked lower.

The Kiwi fell to as low as US$0.7221, a near one-month trough, after slipping 0.9 per cent on Friday.

New Zealand's trade deficit in August was the second largest on record at NZ$1.26 billion (S$1.24 billion), well above forecasts of NZ$765.5 million due to a sharp contraction in dairy and meat exports.

The kiwi is still one of the best performing major currencies this year, up nearly 6 per cent. However, it has fallen for the last two weeks and is set to end September in the red after three straight monthly gains.

The weakness set in after the Reserve Bank of New Zealand (RBNZ) reinforced last week that further easing would be necessary despite rapid growth in the economy. It held rates at a record low 2 per cent.

"There is still that continuation from last week where the currency's been underperforming a little bit," said Philip Borkin, senior economist at ANZ.

"There was a bit of scepticism from the market on whether the RBNZ would maintain its dovish stance. But with them doing that, we've seen it pull back." Futures markets imply a 70 per cent chance of a cut in November.

The Australia dollar fell 0.1 per cent on Monday to US$0.7612, extending losses from the previous session.

The Aussie rose each day of last week before coming under pressure on Friday. It posted its best weekly performance in nearly two months, rising to an important chart resistance but struggled to climb higher.

Traders expect the Aussie to remain firm this week, likely influenced by global market sentiment and commodity prices in the absence of any major economic releases locally.

The Aussie fared better against the kiwi, rising for the eighth straight day. It was up 0.3 per cent on Monday to NZ$1.0531, a level not seen since Aug 19.

"AUD/NZD is trading higher on rising expectations of more RBNZ rate cuts," said Joseph Capurso, senior currency strategist at Commonwealth Bank, which expects a 25 basis point cut in November.

Mr Capurso added that a further slowdown in New Zealand's one-year-ahead measure of inflation expectations due Friday would widen the odds of more aggressive easing by the RBNZ and undermine the kiwi.

New Zealand government bonds gained, sending yields 0.5 basis points lower.

Australian government bond futures edged higher, with the three-year bond contract up one tick at 98.450. The 10-year contract rose three ticks to 98.02.

REUTERS