New Zealand: strong trade surplus
By Vincent Mivelaz
Numerous countries would envy New Zealand's commercial situation. Despite trade tensions creating disorder in business transactions globally, the country's economy continues to surprise, with a trade balance surplus for the month of May of NZD 294.28 million (USD 206 million), its highest rate since December 2017.
With exports rising by NZD 454.30 million and imports maintaining a constant pace (NZD 5.12 billion), it appears that New Zealand is increasingly popular with its commercial partners, who need to find alternatives for their existing domestic consumer goods demand. Indeed, increasing by 27%, 17%, and 0.5% for China, EU and Japan respectively, due to a stronger demand for meat, lamb, fruit and aluminum, it seems that New Zealand's economy is in a rather comfortable commercial situation for now, although business confidence declined in June for the fourth month in a row, according to the survey.
Expected to maintain its reference rate unchanged at 1.75% due to continued weakness in economic growth and inflation, the Bank of New Zealand will most probably maintain its dovish stance in today's monetary policy meeting, a rather worrying situation for the kiwi. Currently trading at 0.6823, its lowest level since July 2017 (-4% year-to-date), the NZD/USD is expected to decline further, as a stronger greenback coupled with widening interest differentials will strengthen the downward tendency. The pair are expected to head along 0.6810 in the short-term.
Trade war remains main driver
By Arnaud Masset
The ongoing trade war is creating a lot of confusion on the FX market, as market participants struggle to guess how it will play out. So far, the US dollar has largely benefited from this uncertainty and it has extended gains against most of its peers, with the exception of safe-haven currencies. Since mid-June, speculators have been long USD again. This is the first time since June last year. Traders are heavily against the Kiwi, the Aussie and the Swissie. However, regarding the latter, speculators have started to reduce their short CHF exposure over the last few weeks amid escalating trade tensions.
Recently, President Trump has been facing setbacks in the form of retaliatory measures and the relocation announcement by some US companies that would suffer from upcoming tariffs. Against such a backdrop, it is reasonable to expect that Mr Trump will ease his stance and negotiate with America's trade partners. Meanwhile, the market remains in risk-off mode, dumping currencies of export-oriented countries and favouring the Swiss Franc and the yen. We see no reason for this trend to reverse anytime soon, at least as long as the uncertainty persists.