NZ: Trade is thriving - TDS

Annette Beacher, Chief Asia-Pacific Macro Strategist at TD Securities, explain that the record trade deficit of New Zealand economy for September needs context (-$NZ1.6b cf mkt $NZ1.4b).

Key Quotes

“Firstly, Q3 is a seasonally deficit quarter; aircraft distorted imports to the upside (a one-off); and thirdly, exports (sa) are thriving.”

“In Q3, exports rose by +6.3%/q (prior +4.8%/q) shared across the major commodities of dairy, meat, fruit and lumber (sa, left chart). Imports rose by +3.7%/q, boosted by fuel, aircraft and consumer goods. Our tracking for the Q3 current account deficit is -3.4% of GDP, and the trade sector adds +0.3%pts to Q3 GDP.”

“The economy is in good shape, with numerous price and activity data reports surprising to the upside since the Aug MPS. The Nov MPS needs to reflect 'F9' GDP and CPI upgrades at a minimum, as well as acknowledge the weaker exchange rate.”

“However, our simple fair value model says NZD is rich (chart right) and we cannot rule out the RBNZ Governor reviving rate cut talk at the 8 Nov MPS, keeping OIS and NZD under pressure.”