THE TAKEAWAY: NZ 2Q Current Account Deficit Worse Than Expected > Strong Goods Balance Offset by Weak Income Balance > NZDUSD Relatively Unchanged Near Support Level
Source: FXCM Strategy Trader
The New Zealand Dollar traded relatively flat following data showing a worse-than-expected 2nd quarter current account deficit for the South Pacific island nation. In spite of the data missing expectations, NZDUSD failed to breach support at 0.8207 and continues to trend near this support level as of 02:25 GMT on Sept. 21. The Relative Strength Indicator remained well within the 30 to 70 range, reflecting a lack of strong buying or selling of the currency.
The 2nd quarter current account balance was -NZ0.921 billion compared to the median prediction of -NZ0.671 billion in a Bloomberg survey. This figure brought the cumulative current account deficit for the year to June to 3.7 percent of GDP. The main contributor to the deficit was the net income from abroad balance – at -NZ2.698 billion – which more than offset a positive goods and services balance driven by strong dairy and agricultural exports.
The lack of directional momentum of the Kiwi since the data release reflects overall market uncertainty prior to the FOMC Interest Rate Decision later on Sept. 21. While the Fed is expected to keep rates at current near-zero levels, markets will be closely monitoring the accompanying statement for signs of further monetary stimulus. Any indication of stimulus (or lack thereof) will affect overall risk sentiment and drive “risky” currencies such as the Kiwi.
Over the longer term, NZDUSD moves will continue to be affected by growth prospects in Asia and the outlook for interest rates. Increasing signs of a slowdown in New Zealand’s main export markets – with the IMF revising down its forecasts for Chinese GDP growth for 2011 and 2012 – is expected to weigh on the Kiwi. At the same time, recent data pointing to a slow recovery from the February earthquake, and an RBNZ in no hurry to raise interest rates this year, will continue to place pressure on the New Zealand Dollar.