Premature Chinese growth deflates Kiwi

10.51 NZST, Wednesday 11 July 2012

Premature Chinese growth deflates Kiwi

By Andrew May (Sales Trader, CMC Markets New Zealand)

Astonishingly enough, traders were expecting a somewhat conservative number when the June Chinese trade balance popped up yesterday. However, they found themselves a little shocked that imports were well under par at 6.3%, practically half the May figure (12.7%) and what was expected for June (11%).

The NZDUSD had its wings clipped in spectacular fashion as a consequence and fell 35pts to 0.7930. In reality this is now confirmation of a slowing down of the world’s second largest economy despite recent monetary stimulus efforts late last week.

The Chinese growth spurt that cushioned Australian and New Zealand economies during the GFC is now clearly lagging, taking with it the demand for raw commodities. This is proportionately bad news for Aussie and Kiwi exporters reliant on Asian buoyancy.

Nevertheless, risk on, risk off appetite will continue to support the NZDUSD well over 79c for the medium term. We'll be awaiting Chinese GDP due Friday for signs of life above 7.7%, yet can’t turn a blind eye to Europe's woes either.

Spanish bond yields continuously teetering into 7% 'no man’s land' and Greek bond redemptions due 20 August implying the Greek government will ask for leniency on their current bail out, will sustain the resilient tug of war between the safe haven greenback and risk sensitive currencies.

With the Kiwi battling on through market volatility, subdued earning fears citing S&P stocks to fall 1.8% for the June quarter and generally weaker stocks in the interim, expect to see a 75pt leeway either side of 0.7950.
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