THE TAKEAWAY:New Zealand reports July trade deficit > Could reduce expectations for RBNZ to increase interest rates > NZD/USD Lower
The Kiwi traded lower against the US Dollar as New Zealand reported a larger-than-expected trade deficit of -774 million for the month of July. Exports declined to 3.85 billion New Zealand dollars while imports grew to 4.62 billion. Deteriorating trade conditions could lead the Reserve Bank of New Zealand to introduce monetary easing to encourage economic growth. Since Governor Graeme Wheeler spoke about the overvaluation of the Kiwi last week, market expectations for the RBNZ to raise interest rates have been reduced. However, Credit Suisse’s overnight index swaps show investors still expect 71 bsp of rate increases through the next 12 months.
Prices for the pair saw an immediate decline of about 20 pips after the release. However, there was a lack of follow-through as prices stabilized above 0.7800.
NZD/USD (1-Minute Chart)
Source: FXCM Marketscope
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Jimmy Yang, DailyFX Research Team