Asia Focus: NZDUSD Weighed Down By Disappointing Trade Data

New Zealand posted its biggest deficit for the month of August at NZD 1.19 billion from NZD 771 million in July which added further selling pressure on NZDUSD below the 0.8240 support level. The pair was firmly supported so far this month, and it looks like traders are starting to take some profit which could suggest a greater pull-back towards 0.8200.

Underlying data
Disappointing trade data adds a sour mood to those optimistic on the Kiwi, but no need to worry. Exports are still up year-over-year with gains in wood and log sales. However, exports of dairy products and crude oil continue to slide.

The recent milk powder contamination issue caused a drag on foreign sales of foodstuffs, and a new Chinese drilling platform moving into New Zealand was a significant reason for the surge in imports.

The trade numbers reflect specific events and should not be a major cause of concern. Exports to China are still strong amid declining trade with Australia.

Domestically, business investment is increasing and the prospects for a recovery continue to support the Reserve Bank of New Zealand’s (RBNZ) readiness to increase the official cash rate next year. The fundamentals should encourage traders to time entry points on the dips.

NZDUSD pull-back
NZDUSD performed far better than AUD during the past two weeks, especially after the Federal Reserve decided to maintain its pace of asset purchases. When the RBNZ stated that rate hikes will probably be required next year, AUDNZD fell sharply. Perhaps a greater divergence from its sister currency warrants a little breather around these levels.

A decline slightly below 0.8200 is likely, which can stall the upside off summer lows. The broader rise towards 0.8500 is tough, especially as NZDUSD remains stuck between 0.7500 and 0.8500 since last year.