NZD dips as trade deficit balloons

The New Zealand dollar is in negative territory in the Friday session. NZD/USD is currently trading at 0.7043, down 0.35% on the day.

New Zealand trade deficits surges

The New Zealand dollar is a risk-sensitive currency, so it shouldn’t really come as a surprise that we are seeing significant volatility as the Evergrande crisis unfolds. Early in the week, concerns over the future of the Chinese property giant were at a fever pitch, which sent risk appetite tumbling and the kiwi lower. These fears have subsided, at least for now, as the New Zealand dollar climbed almost one percent on Thursday. Still, the situation remains precarious, as Evergrande, which is the largest issuer of junk bonds in Asia, missed an interest payment on Thursday. Global investors have been left guessing as to what Chinese authorities plan to do with the ailing company-  the choices range from bailout to breakup to default. As the uncertainty continues over Evergrande’s future, we can expect further volatility on the currency markets.

Fed Chair Jerome Powell stated that the fallout from Evergrande is mostly limited to domestic China and that the contagion risk is low. Investors seized on these comments, which have lifted risk appetite and weighed on the US dollar and supported the kiwi’s impressive rally on Thursday.

With no tier-1 events out of the US or New Zealand today, New Zealand’s trade balance for August (MoM) was in focus, and the sharp surge in the trade deficit has weighed on the New Zealand dollar. New Zealand exports were largely unchanged, while imports were sharply higher, resulting in a trade deficit of NZD 2.1 billion, marking a second straight trade deficit.

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NZD/USD Technical

• On the upside, 0.7115 is the next resistance line. This is followed by resistance at 0.7195
• There are support lines at 0.6990 and 0.6945

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