NZ: Merchandise trade

September 25, 2016 05:45 CDT

Consensus Actual Previous Revised
Merchandise trade Balance - level NZ$-735M NZ$-1265M NZ$-433M NZ$-351M
Exports - M/M percent change -14.6% -6.7% -6.6%
Exports - Y/Y percent change -8.7% -4.9% -4.9%
Imports - M/M percent change 7.8% 6.3% 4.4%
Imports - Y/Y percent change -3.1% -10.3% -11.9%

August trade deficit was a much larger than anticipated NZ$1.3 billion. Exports fell more than imports this month. Including August 2016, in the past 10 years there have been seven months with deficits larger than $1.0 billion. Three of these were August months.

Exports tumbled 14.6 percent on the month and declined 8.7 percent from a year ago. Milk powder exports fell to the lowest level since August 2009. The milk powder, butter and cheese commodity group fell NZ$135 million from August 2015, with milk powder leading the fall (down NZ$90 million). All top destinations of milk powder fell in value and quantity, with both China and the United Arab Emirates seeing a drop in value of over half.

Meat and edible offal had a large fall, down NZ$111 million, with declines in both beef and lamb. The United States had the largest drop in beef, and the United Kingdom had the largest decline in lamb. The fall in meat exports is partly due to a record high meat season this time last year. Other commodities such as fruit, wool, casein, and mechanical machinery contributed to the fall.

Logs, wood, and wood article exports offset part of the fall in exports, rising over NZ$100 million. Led by untreated logs, the commodity group hit a new high for export value and was up 3.7 percent from the previous high in August 2013.

Imports were up 7.8 percent on the month and down 3.1 percent from a year ago. On the year, capital goods led the fall in imports, down NZ$195 million (45 percent). Crude oil fell NZ$106 million (38 percent) in value and 16 percent in quantity. Excluding petroleum products and aircraft & parts, goods imports rose NZ$182 million (4.4 percent).

The international trade balance measures the difference between imports and exports of both tangible goods and services. Imports may act as a drag on domestic growth and they may also increase competitive pressures on domestic producers. Exports boost domestic production. Trade balance values are calculated by deducting imports (cif) from exports (fob).

Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect the value of the NZ dollar in the foreign exchange market. Imports indicate demand for foreign goods in New Zealand. Exports show the demand for NZ goods in countries overseas. The currency can be sensitive to changes in the trade deficit run by New Zealand since this trade imbalance creates greater demand for foreign currencies. The bond market is also sensitive to the risk of importing inflation.