Huge China trade deficit on falling exports

By Kymberley Martin

NZD

The NZD declined relative to a broadly stronger USD on Friday, though it held up better than most of its peers.

The NZD/USD drifted lower on Friday evening. It fell further early Saturday morning, after a stronger-than-expected US payrolls number saw the USD surge higher. The NZD/USD closed the week at around 0.8210.

The NZD was stronger than both of its key European peers on Friday night, closing around 0.5240 and 0.6260 respectively versus the GBP and EUR. The NZD/EUR remains comfortably within the relatively tight range it has traded since the start of the year, between 0.6170 and 0.6380.

We continue to believe the potential for new all-time highs on this cross, are more likely than a meaningful pull-back. For now, we see support at 0.6200 and resistance at 0.6280.

The NZD/USD continues to be vulnerable to shifts in global sentiment as it remains some way above our fundamental short-term “fair value”. This continues to be seen in a 0.7450 to 0.7750 range.

For today, there are no key global data releases to impact sentiment. However, keep an eye out for further details in the ISDA ruling on Credit Default Swaps (CDS) on Greek bonds.

Markets will also start the week absorbing the news over the weekend that China recorded the largest trade deficit in 22-years, in February. Today, NZD/USD support is seen at 0.8140, and resistance is eyed at 0.8280.

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Majors

The USD outperformed all its peers on Friday, after a solid US payrolls report. The “risk sensitive” CAD, AUD and NZD held up best relative to broad USD strength.

Our risk appetite index (scale 1-100%) ended the week at 64%, having bottomed at 52% mid-week. Equity markets recorded modest positive returns on Friday. On Friday evening Greece announced its “successful” debt swap (see Fixed Interest). Market sentiment was underpinned early Saturday morning by a better-than-expected US non-farm payrolls number (227K vs. 210K expected).

The USD index, that had been creeping up on Friday evening, surged higher after the release of the US payrolls data. This was despite US unemployment shown to be stubbornly stuck at 8.3%. The USD index rose from 79.40 to above 80.00, where it closed.

By contrast, the EUR/USD was trading around 1.3220 ahead of the payrolls release. After the data it subsided to close at 1.3120. The GBP was on a downward path on Friday evening after the release of weak UK industrial production data. It showed IP fell 0.4%m/m (+0.3% expected). Later, the GBP/USD came under further downward pressure as the USD surged. It traded from 1.5830 on Friday evening to close down at 1.5670.

The USD/JPY gapped higher after the US data release. It closed the week at 82.50, its highest level since April 2011.

The “risk sensitive” AUD held up better than most of its peers on Friday, but still lost ground versus the broadly stronger USD. It traded from 1.0640 on Friday evening to close just below 1.0580.

Over the weekend, China reported February’s trade deficit was the largest in 22 years. While imports held up, exports tumbled to 18.4%y/y (31.1% expected). This raises the prospect of rate cuts from the People’s Bank of China, for the first time since 2008. The PBOC may also further reduce banks required ratios, in an attempt to underpin the economy.

Prospects of a slowing Chinese economy raise concerns for the AUD, though any hint of action from the PBOC will help offset these concerns in the near-term.

There are no data releases today, of note. Tomorrow, all eyes will be on the US Federal Reserve decision.

Also keep an eye out for the final announcement on the Greek PSI deal.   

All its research is available here.