New Zealand’s Trade Deficit Ain’t So Bad!

July 2013 Figures

Data released from New Zealand earlier today shows that the country incurred a whopping 774 million NZD trade deficit for July. The figure was a pretty big disappointment especially since markets only expected a small contraction at 18 million NZD.

To top it off, the latest reading translates to the biggest deficit we’ve seen since February. It’s also worth noting that this is the first time in three years that we’ve seen a negative reading for the month of July.

Making it all the more worse is the downward revision to June’s reading from 414 million NZD to 374 million NZD.

Why is it important?

The trade balance report, for those of you who don’t know, reflects the difference between a country’s exports and imports. Traders pay close attention to it because information on the net exports of a country can help to predict future trends in inflation and foreign investment.

This report is particularly important to New Zealand. The trade industry plays a crucial role to the economy, with two out every three jobs in New Zealand being dependent on it. Also, the New Zealand Ministry of Foreign Affairs and Trade estimates that exports generate 4 NZD out of every 10 NZD that is earned by the economy. That means that almost half of the economy’s income comes from what the country sells abroad!

The report ain’t so bad

So, with the recent figures from New Zealand, does this mean that the economy is in trouble? I wouldn’t jump to that conclusion yet, if I were you.

As I said, the trade balance is based on both exports and imports. A look at the underlying figures shows that the deficit was largely due to the surge in imports rather than a drop in exports.

Exports only fell marginally by 196 million NZD. For the most part, this was caused by the downtick in crude oil which was down 141 million NZD. It was followed by the drop in exports on dairy products like milk powder, butter, and cheese which were down by 137 million NZD.

On the other hand, imports surged by a big 17% at 676 million NZD from June to July. Most of it went to the purchase of helicopters and other aircraft parts, valuing at 255 million NZD. Imports on petroleum products were also up by 200 million NZD from June.

Because the figure is largely due to one-off factors, many market junkies argue that the report offers nothing for us to be worried about and the disappointment for July could be nothing more than just a fluke.

This probably explains why NZD/USD didn’t slide below the .7800 handle despite the negative headline figure. In fact, if you zoom out to the daily timeframe, you will see that the rising trend line on the pair still remains intact.

Now the question is, will the uptrend on NZD/USD continue?

NZD/USD Chart