An air of apathy in August
Market movements across most asset classes were well contained through August. Alongside the Northern Hemisphere summer lull, the US-Iran conflict remained in stalemate. Global equities continued to post fresh record highs, supported by stronger earnings and untroubled by modestly higher global bond yields. The NZD was relatively flat against a backdrop of low FX volatility. The JPY was the weakest major currency, as the impact of late-July official intervention faded, while the AUD outperformed as markets shifted towards expecting further RBA tightening.
Broad weakness in June for the NZD
Stronger US economic data and a more hawkish Fed update had a greater market impact than positive developments in the Middle East. The USD was broadly stronger, while the NZD and AUD were the worst-performing major currencies as commodity prices plunged. For the NZD, there was also an unwinding of its late-May strength, as the market faded the extent of rate hikes priced into the curve, leading to lower NZ-global rate spreads.
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.