Dollar slump not so easy to comprehend

By BRIAN FALLOW

The New Zealand dollar dropped to a post-float low yesterday, hammered by worse-than-expected trade figures.

But economists said the trade numbers were not as bad as they at first appeared, while market sources said the dollar's slide came in light trading volumes as buyers remained sidelined.

Having already fallen 1.8c since Tuesday's local close, the dollar was sitting around 43.2USc before the trade numbers were released. It then fell to 42.35c, an all-time low, before recovering to around 42.8c by yesterday afternoon.

WestpacTrust chief economist Adrian Orr said that at the moment the markets were looking for any excuse to sell anything other than the US dollar.

ANZ Bank chief economist Bernard Hodgetts said that in other times numbers such as these might not have moved the market at all.

"Or the slowdown in import growth might even have been taken as a signal to buy," he said.

July recorded a merchandise trade deficit of $330 million, where the market had expected around $40 million.

On an annual basis, the deficit widened to $3.36 billion, backsliding from the $3.18 billion recorded for the year to June and retracing some of the gains of the previous three months.

The figures are provisional only, embodying Statistics New Zealand's estimates on the export side, which in recent months have been up to $50 million light. Detailed export data will not be released until September 7.

While imports were in line with expectations, exports were about $300 million lower. Some of that might reflect timing factors, such as dairy herds drying off earlier than normal, economists suggested.

Statistics New Zealand said the underlying trend remained one of exports growing faster than imports.

For the three months ended July, exports were up 21.6 per cent on the same period last year, outpacing 19.5 per cent growth in imports.

Deutsche Bank economist Darren Gibbs said that, given an estimated increase of 15 per cent or more in import prices over the past year, the latest data confirmed that growth in import volumes is slowing sharply, in line with the weakening in domestic demand.

Over the July quarter, plant and machinery imports were up 25 per cent on a year ago, boding well for business investment, while imports of consumer goods rose 11 per cent and cars 2 per cent. Unsurprisingly, the biggest increases were in crude oil (87 per cent) and petrol (50 per cent).

Mr Hodgetts said it would take more than one month's figures to convince him exports were falling into a slump.

"Everything we hear from exporters is very good," he said, although manufacturers were reporting strong third-country competition in Australian and Asian markets.

Deutsche Bank also continues to expect strong export growth over the coming year.

"Prospects for the agricultural and forestry sector look very good indeed," Mr Gibbs said, "while continued levels of robust world growth and the increasingly competitive exchange against most of our key trading partners mean that export prospects for the manufacturing sector also look very bright, more so the longer the currency remains at, or around, current levels."