The New Zealand dollar NZD fell to a 10-week low against the USD on Thursday, after data showed the country’s current account deficit blew out to record levels in the first quarter.

Long standing concerns about the size and sustainability of New Zealand’s current account deficit were rekindled by the worse-than-expected data.

“The current account deficit is 9.3 percent of GDP, much too high for the market’s liking, particularly as attracting capital flows is becoming more difficult,” said Ashley Davies, currency strategist at UBS in Singapore.
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The South African Reserve Bank’s monetary policy committee (MPC) decided to hike the key interest rate by 50bp to 7.50% at today’s monetary committee meeting - the decision was a bolt from the blue.

The decision likely came as a reaction to increasing inflationary pressures in the economy as a result of strong domestic demand and high oil prices. Adding to South Africa’s woes of late have been the recent slide in the rand, which has been following commodity prices south, increased global aversion to risky emerging markets and last but not least the worsening current account deficit.
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Most currency watchers think that any USD rally is likely to prove temporary, given the market’s mounting concerns over the US current account deficit, which stands at around 6 pct of GDP, and expectations of a narrowing in the yield differential between the US and its major competitors.
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Is the USD at risk because of America’s enormous current account deficit? Many “experts” are spreading information that is confusing, outdated or simply not applicable. Yes, the current account deficit puts the dollar at risk; at the same time, however, a lower dollar will provide no long-term solution to the current account deficit.
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