New Zealand’s Trade Balance deficit narrowed to –NZ$5.48 billion in the year January, down from –NZ$5.62 billion in the previous month. The reading printed substantially better than economists predicted: preliminary forecasts had called for the gap to widen to –NZ$5.75 billion. The improvement in the headline figure came as deepening recession weighed on spending and eroded domestic demand more so than overseas sales. Indeed, although exports added just 3.0%, imports actually shrank -0.9% to NZ$3.36 billion, the lowest in 19 months. Yesterday, the Reserve Bank of New Zealand lowered forecasts for inflation and economic growth and said unemployment will average over 6% for the two years from the first quarter. This suggests spending is likely to remain sluggish for some time, giving scope for the trade shortfall to narrow further. From a long term perspective, this gives the New Zealand Dollar an advantage against the currencies of those countries where the trade deficit is likely to continue to widen, setting the stage for appreciation against the likes of the Euro and the Japanese Yen.
