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Trade Deficit Spells Kiwi Disaster

Kiwi buyers panicked overnight as the consensus surplus figure was trumped by a larger than expected deficit for the month.  With imports rising above the number of exports leaving the country, Mays trade balance declined back into the red and sported a NZ$104 million deficit.  The highest figure for any May in comparison, the shortfall was four times wider than closest prediction, set at NZ$23 million.  Imports for the month increased by 24.3 percent as the valuation of the actual imports contributed heavily to the figure.  More specifically, according to Statistics New Zealand, elevated costs of oil products and aircraft imports bolstered the massive gap.  Exports, even though falling short, fared well for the month.  Rising to a record, exports rose 44 percent in the annualized comparison and accounted for NZ$3.65 billion.  However, with imports visibly outweighing exports, the Pacific economy is now printing a considerable deficit which contributed to the key break seen in the overnight.  Even more depressing is how the figure is being associated with the preceding current account figure which posted a gap equivalent to 9.3 percent of overall gross domestic product.  Now with trade obviously hurt and consumer confidence shaken, things arent looking so optimistic for an economy that still sports rising consumer prices.  Fearing the worst has come, bidders exited with multiple style funds being main sellers on triggered stops below at 0.5980.

AUDNZD

More Kiwi Weakness Boosts Cross

Kiwi weakness drove the AUDNZD cross higher as traders digested the wider than expected shortfall in the monthly <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />New Zealand trade balance.  The survey, worse than expected, coupled with a tick higher in copper prices helped to boost the Australian leg higher in the North American session as buyers pushed the pair 222 points higher on the day.  Now, stalling ahead of the Asian session, a lot remains dependant on tomorrows Federal Open Market Committee interest rate decision.  Should the dollar be subject to further interest rate speculation, the impending dollar biased coupled with still looming risk averse trading may spell further downside for the Australian leg.  This could pose an interesting situation as the cross is likely to suffer on both end of the cross.  Now, for the pair, the Aussie rate outlook is likely to become increasingly important.  Further upticks in inflationary pressures could result in higher interest rate decisions by the Reserve Bank of Australian Governor McFarlane.  This would be considered comparatively positive as the Australian economic outlook seems likely to survive rather recessionary conditions.  For the moment, trading will likely be muted in the overnight as well with plenty of selling interest above at the 0.7300 figure leading into the imminent tomorrow afternoon.

NZDJPY

Retail Sales Soars, Boosts Yen

Calls for Bank of Japan Governor Fukuis resignation continue to press the Japanese Yen in the near term against the majors.  However, todays Kiwi bearishness helped in underpinning the Yen component, and boosting it to a rounding out position in the top three market movers on the day.  Exacerbating the cross decline in the New York session, retail trade figures for the month were released higher than expected for the month.  According to the monthly report, Japanese retail sales rose 0.1 percent in the annualized comparison while soaring on a monthly adjustment by 0.6 percent in May.  Todays results were far better than most had expected with the consensus pitting the consumption gauge to actually decline by 0.6 percent year on year.  Continuing the relatively long line of positive economic data released in the first half of the year, the retail survey bolsters near term confirmation that the economy is turning around.  Meanwhile, at the same time it additionally serves to bolster speculation of a short term decision regarding the official end to zero interest rate policy.  Considering the current debacle over Fukuis resignation, yen bullishness looks ready to stampede in full favor of the Asian currency.