External deficit steady
• Annual current account deficit at 3.6% of GDP
• No implications for our 0.9% q/q Q1 GDP pick
• Oil spike and unwind yet to make presence felt
• Visitor spending higher
• International investment liability position shrinking
There was very little surprise in today’s Q1 balance of payments data. We, the market, and the RBNZ all expected the annual current account deficit to be steady in the year to March 2026 compared to its reading in calendar 2025. And so that proved to be the case.
That said, minor downward revisions saw the annual deficit steady at 3.6% of GDP rather than 3.7% as forecast.
The external accounts also offered no last-minute reason to alter our thoughts for Q1 GDP tomorrow. The nominal values of exports and imports of both goods and services in today’s data imply real outcomes broadly in line with what we anticipate in tomorrow’s GDP release. Solid real growth in exports and imports remain part of our 0.9% q/q expectation for Q1 GDP tomorrow.
NZD outperforms in May
• US-Iran peace negotiations dominated newsflow during May with the market assuming an imminent resolution that helped support risk appetite; a mid-month global bond market sell-off provided only a brief disruption
• Higher US-global rate spreads supported the USD, but the NZD managed a modest gain, with some late-month support from RBNZ guidance on the likelihood of rate hikes over coming meetings; the NZD was stronger on all the key crosses
Risk appetite remained elevated through May as markets anticipated a peace deal in the Middle East. Oil prices plunged and global equities surged to fresh record highs, with momentum only briefly interrupted by a major global bond market sell-off in the middle of the month. While the USD found support as markets shifted from expecting the Fed to ease this year to expecting tighter policy, the NZD outperformed, supported by the RBNZ signalling that the OCR may need to rise at upcoming meetings. The NZD traded within a tight range of less than 2 cents but finished strongly and ended 1.3% higher to around 0.5990.
Risk appetite recovery in April, despite the war
Risk appetite bounced back strongly in April, supported by the US-Iran ceasefire and hope that the Strait of Hormuz would soon reopen. After plunging in March, the MSCI AC World Equity index surged over 9% in April while oil prices fell back. The USD was broadly weaker, while the NZD and AUD outperformed, with NZD/USD closing up nearly 3% to just over 0.59. Rates markets were range-bound. NZ’s rates curve was higher and flatter, after the RBNZ adopted a more hawkish policy tone and CPI data were stronger than expected.