New Zealand February trade balance above expectations
New Zealand economy is showing signs of recovery following recent February trade balance data given at NZD 217million (consensus: -100 million) or USD 157 million, its highest rate after NZD -655 million deficit in January. On the downside however, New Zealand 12 months trade balance remains at NZD -3 billion. Exports rose by NZD 4.46 billion (previous: NZD 4.31 billion) while imports increased by NZD 4.24 billion (previous: NZD 4.94 billion).
Royal Bank of New Zealand agreed to implement a second mandate alongside price stability on Monday, consisting of maximum employment, in line with Fed’s existing dual mandate implemented in the 1970s. The mandate will be enshrined in law this year. New Zealand treasuries remain unchanged following the announcement. 2-year and 10-year yields are given at 1.88% (+0.17) and 2.78% (+0.18).
On forex side, we notice the strong increase of non-commercial long NZD futures positions increasing by 19’626 (previous week: -2’816), amounting to 44% of total open interest contracts, thus signaling traders’ tendency to dump the greenback. The trend might continue into that direction, supposing further weakness from the USD. Accordingly, we suspect the USD/NZD to head along the 1.37 range.
Why is HKD weakening?
The Hong Kong dollar is falling against the US dollar, even though markets are comfortable with China’s outlook, Reasons we can rule out are positivity around the greenback, worries about Hong Kong’s domestic growth or a straight attack on the currency peg.
So what is it? Widening in LIBOR-HIBOR spreads suggest that this is a traditional interest rate arbitrage. Carry traders are buying USD for the yield, so selling HKD. The Hong Kong Monetary Authority has plenty of reserves to defend the peg, and automatic, self-adjusting interest rates should kick in at the upper range, where HKMA will switch to selling USD and buying HKD. This will lower liquidity and drive up HKD rates, discouraging carry traders.