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.

The kiwi fell immediately following the release of the data, and later dropped further on comments by ratings agency Standard and Poor’s that the deficit remained a risk for New Zealand’s sovereign rating.

Investors had been expecting the current account deficit to worsen but were taken aback when the annual deficit hit a record NZ$14.54 billion ($9.03 billion) driven by poor trade performance and foreign investors repatriating hefty profits from their New Zealand assets.

Economists generally agreed that the deficit had a little further to go before it peaked, but ANZ-National Bank’s head of market economics Cameron Bagrie doubted it would be the determining factor in any further weakness in the kiwi.

“To get the second big drive lower in the New Zealand dollar from here I think is still yield-dependent, as opposed to being dictated by an imbalances theme,” Bagrie said.

Attention now turns to Friday’s first quarter growth data, with a soft number likely to be a catalyst for another lurch lower in the kiwi.

SOURCE: REUTERS