Hunting for news trading opportunities this week? Let’s take a quick look at New Zealand’s trade balance report and check out how we can get some pips off this forex event.
Why is this report important anyway?
If you’ve read our economic calendar cheat sheet, then you’ll know that a trade balance report is a sum of an economy’s exports and imports and directly contributes to the GDP computation.
Forex traders pay attention to trade numbers because, aside from contributing to the GDP, export and import figures also reflect the impact of other issues such as export demand from major trading partners, currency strength, and global commodity prices. These details become even more important for export-dependent economies such as New Zealand.
This week market players are paying attention for three reasons: First, the Reserve Bank of New Zealand (RBNZ) had specifically cited concerns for its trading partners as one of the reasons why it had cut its rates.
Next, they would like to see if the economy would clock in another trade surplus after breaking a seven-month deficit streak last month. Last but definitely not the least is the fact that New Zealand’s trade balance data is one of the few top-tier releases that could move the markets this week.
What happened last time?
For the first time since May 2015, New Zealand printed a trade surplus to the tune of 8.1 million NZD. This is a lot better than the expected deficit of 245.5 million NZD but still behind January 2015’s 52 million NZD surplus.
A closer look revealed a 5.9% increase in exports from a year earlier, mostly due to China demanding more milk powder, butter, cheese, and cherries. Meanwhile, imports shot up by 7.2% despite the large decline in crude oil imports thanks to huge purchases of intermediate and consumption goods.
Not surprisingly, news of the surplus sent the Kiwi higher against the dollar and the yen. The bullish momentum didn’t last, however, as both NZD/USD and NZD/JPY peaked during the Asian session and stayed in tight ranges until a new catalyst came along to erase most of the Kiwi’s gains. Still, NZD/USD had enjoyed a good +1.10% and NZD/JPY a decent +1.26% run from the release up to their Asian session peaks. Not bad for a day’s trade, right?
How can you trade this report?
Tomorrow at 9:45 pm GMT New Zealand is expected to print a surplus of 90 million NZD for the month of February. China, now New Zealand’s largest trading partner, had recorded its smallest trade surplus in February though imports from New Zealand remain unchanged. On the other hand, oil prices have recovered a bit from its early lows and could boost imports higher. Will demand from China be enough to offset the increase in the value of oil imports?
A stronger-than-expected surplus would inspire speculations that New Zealand’s trade is on its way to recovery. Meanwhile, disappointing trade numbers or a dip back into deficit will support the RBNZ’s concerns over its trade partners and inspire a selloff for the Kiwi.
In any case, it’s worth noting that the Kiwi’s directly-correlated reaction is likely to last only until another catalyst comes along. Best take advantage of intraday momentum if you’re trading this one and take profits/adjust positions some time during the Asian session!