New Zealand's September trade deficit almost doubles forecasts at NZ$1.97b

At the margin, a wider trade gap is slightly negative for the New Zealand dollar, because a bigger external shortfall implies greater dependence on overseas funding. The channel to watch is oil: with crude prices supported by the Iran war, evidence that fuel accounted for the jump in imports would signal imported-inflation pressure the RBNZ cannot overlook. That would undercut the dovish interpretation of weak domestic demand and leave further tightening as a live option. Rate markets must set that against the pause they have been expecting for 28 October. China’s growth numbers due later today carry greater weight for the kiwi’s near-term path, since China is a key export destination.

New Zealand now purchases more from abroad while selling no additional goods overseas, and with fuel costs high, that imbalance sits directly with the RBNZ just before an election-period rate decision.

Summary:

• September trade balance: -NZ$1.971 billion versus a -NZ$0.775 billion forecast, after a -NZ$1.536 billion reading a month earlier
• September imports: NZ$8.44 billion, up from NZ$8.02 billion a month earlier
• September exports: NZ$6.47 billion, against NZ$6.48 billion a month earlier
• The larger deficit was due entirely to higher imports, with exports flat
• The services index came in at 50.9 for a fourth straight month of modest expansion, with employment below 50
• The RBNZ, having pushed through two consecutive rate increases and taken the cash rate to 2.75% in September, makes its next call on 28 October at 01:00 GMT (21:00 US Eastern, 27 October), prior to the 7 November election

New Zealand’s monthly merchandise trade deficit came in well above expectations in September, as imports advanced and exports went nowhere, adding to the mixed economic picture a little over a week before the RBNZ’s next policy meeting.

The goods shortfall was nearly NZ$2.0 billion, more than twice the approximate NZ$0.8 billion shortfall that economists had forecast and wider than August’s roughly NZ$1.5 billion gap. Imports climbed to about NZ$8.4 billion from NZ$8.0 billion, while export values were roughly unchanged, near NZ$6.5 billion.

The composition matters as much as the top-line figure. Since exports did not move, the whole deterioration came from stronger imports. A detailed category breakdown will reveal how much of that gain reflects costlier fuel — something businesses have repeatedly raised as a worry — rather than firmer demand for capital goods and consumer items.

The trade release follows the latest services survey, which put the BNZ-BusinessNZ Performance of Services Index at 50.9 and showed the sector expanding for a fourth consecutive month in September, albeit only slightly. Employment in the survey sat just under the 50 threshold, and companies listed cost-of-living pressures, fuel prices, interest rates and the forthcoming election as their principal concerns. Read together, the two reports paint an economy that is expanding but doing so unevenly, with both households and businesses confronted by higher costs.

That context sets up a finely balanced decision for the RBNZ on 28 October, with the announcement scheduled for 01:00 GMT (21:00 US Eastern on 27 October). The central bank has raised the official cash rate at each of its last two meetings, the most recent being a 25-basis-point increase to 2.75% in early September, with annual inflation having reached 4.1% in the June quarter. Governor Anna Breman said then that another rise was probable, though when it would come remained highly unclear, and that policy was not following a predetermined path.

Market pricing has tilted toward a pause at this month’s meeting. Because the October review is a shorter statement with no new forecasts, the key question is whether the bank will hold onto its tightening bias, along with any remarks on the currency and imported inflation.

The meeting also falls just ten days before the 7 November general election, a stretch that the services survey suggests is already making firms cautious. A softer domestic economy argues for holding off, while elevated inflation and climbing import costs argue for keeping the option of further hikes open.