NZD/USD Slides on China’s Soft Trade Numbers

08/09/2023

2 minutes read

2023.08.09 03:51

China’s exports and imports fall sharply
New Zealand dollar slides by 1%
China’s CPI expected to indicate deflation

In the North American session, is trading at 0.6044, down 1.01%. Earlier, NZD/USD touched a low of 0.6034, its lowest level since June 8th.

China’s trade plunges as the economy struggles

China’s post-Covid recovery has not gone according to plan, as weak global demand and soft domestic demand have weighed on economic activity. This message was reiterated on Tuesday as China posted disappointing trade data in July. Exports fell by 14.5%, worse than the 12.4% decline in June and the consensus estimate of -12.5%. It was a similar story for imports, which declined by 12.4%, down from -6.8% and below the estimate of -5%.

The weak trade numbers from the number two economy in the world are dismal news for the global economy, particularly for New Zealand and other Pacific Rim countries that are heavily dependent on trade with China. New Zealand is China’s number one trading partner and the soft trade report out of China has sent the New Zealand dollar tumbling on Tuesday.

The markets are braced for more bad news on Wednesday, with the release of Chinese CPI. As China’s economy weakens, we’re seeing signs of deflation. The consensus estimate for July stands at -0.1%, after a -0.2% in June. On an annualized basis, the estimate for July stands at -0.4%, after a reading of zero in June. Deflation is a signal that China’s economy is in trouble, which does not bode well for New Zealand.

The Federal Reserve continues to send a hawkish message to the markets, which has helped boost the US dollar. Fed member Bowman said on Friday that the Fed might have to deliver “additional rate increases” in order to bring inflation back down to 2%. This would put her at odds with the money markets, which have priced in a pause in September and are looking ahead to rate cuts early next year.

On Monday, FOMC member Williams said that he expects that the Fed will need to keep a restrictive stance “for some time”, dependent on the data. Still, the money markets have priced in a pause at the September meeting, which would mark only the second pause since the Fed began raising rates in March 2022.

NZD/USD Daily Chart