Can we expect another trade surplus for New Zealand, or will the trade balance return to its trend?
Either way, it won’t be surprising if we get some volatility in NZD pairs with this data release happening overnight on Tuesday.
So, let’s go over the factors that might contribute to how this release could impact the markets.
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Schedule and Expectations
New Zealand’s January trade balance along with its annualized version, are both expected to be published next Tuesday 22:45 CET (or 16:45 EST). We will also get the stand-alone import and export data.
The consensus among economists is that the monthly trade balance will slip back into deficit by $139 million. Meanwhile, the annualized trade deficit will stay at multi-year lows of $5.9 billion.
The Trends
During the latter half of last year, New Zealand had maintained a consistent trade deficit (with the exception of December). This was mostly due to imports to supply consumer demand, which were outstripping increases in exports.
The trend reversed in the last month of the year, with imports falling while exports jumped. This caught the market by surprise with a trade surplus despite expectations of a deficit.
As discussed previously, the rise in dairy prices was the main driver behind the increase in exports. That trend has subsequently been maintained during January. This ought to be factored in by analysts in the projection of the value of exports.
Another factor to consider is increasing demand for imports to supply the rising number of tourists. Year over year, increases in tourist arrivals were up 3.1% over a record January (tourist arrivals have been consistently increasing since the end of the sub-prime crisis).
During January, we also saw a significant increase in credit card spending, which is another factor to indicate that imports might come in higher.
The combination of these factors might indicate that while exports show all the indications of remaining healthy, the income produced by the exports, and increasing domestic demand might drive imports higher as well. This leads to the expectation of a relatively minor deficit.
We should note that on an annualized basis, the trade deficit has been progressively increasing since the beginning of the year. And it is currently at the highest it’s been since the end of the sub-prime crisis
Going Forward
Friday saw concerning reports for NZ exports. The government confirmed the second finding of fruit flies in South Auckland. Not an epidemic yet, but if they cannot contain the situation, it could potentially have a significantly negative impact on NZ agricultural exports. Fruit exports constitute 5.8% of the country’s total exports.
On the import side, the largest driver in fluctuation of import value is petroleum prices. These trickled higher during January and continued to move higher so far this month. (Note that current crude prices are not as high as they were when New Zealand had seven consecutive months of trade deficit.)
Even if New Zealand manages to register a second month of trade surplus, several instances are stacking up to make it an exception.
