New Zealand’s Current Account sank deeper into deficit in the second quarter, posting a greater-than-expected shortfall of –NZ$3.91 billion. This brought the annualized deficit to a record –NZ$14.97 billion even as prices peaked for the antipode’s commodity exports. Overseas shipments were held back by a drought that cut into dairy production while oil prices inflated import volumes.
Bringing the deficit back into sustainable territory will be a hard-fought battle: the commodities rally has apparently run out of steam in the near term, which will depress exports revenue. The adjustment will have to come at the expense of the New Zealand dollar: the Kiwi will lose value as the RBNZ cuts interest rates, making New Zealand’s exports comparatively cheap all the while reducing domestic consumers’ ability to buy from abroad. Over time, this will help push the Current Account in the right direction, though naturally it will take months if not years to play out. In the meantime, the market is pricing in that benchmark borrowing costs will shed between 125-150 basis points in the next 12 months.
For a complete listing of this week’s data releases, please see the DailyFX Economic Calendar.