NZD Record High, AUD Holds Despite Flood-Hit GDP

The New Zealand dollar climbed to a record high after a stronger than-expected trade surplus but disappointing Australian data and broad market worries helped to cap the rally. The euro is lagging in early trading on worries about Greece but overall moves have been small. Market closures will mean low liquidity for the remainder of the day.

NZD/USD gained a quarter cent and climbed as high as 0.8219 in the first hours of trading after New Zealands trade surplus hit NZD$1.11 billion in April compared to the $600 billion expected. The gains pushed the pair through the 0.8214 record set in 2008 and to the highest since the kiwi dollar was floated in 1985. We caution that the pair quickly fell back below the record mark so the technical breakout has not been confirmed.

News from Australia weighed on NZD after Treasurer Wayne Swan said Wednesdays Q1 GDP report will likely show a dramatic hit on growth due to floods in Queensland and Japans disaster. He said it probably cut more than 1 percentage point from growth. The consensus estimate is for a -0.3% q/q reading.

Economic data also weighed on the Australian growth picture with Q1 company gross operating profits falling 2.0% compared to the 2.0% rise expected. Despite the downcast news, AUD has held its ground in early trading.

The weakness in the forex market is in Europe where the euro is modestly lower after Greek PM Papandreou vowed to press ahead with austerity. More importantly, the FT is reporting that European leaders are making some harsh demands in exchange for further bailouts that include: selling of state assets and international involvement in Greeces ineffective and corrupt tax collection system.

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A reminder that the UK and US will be on holiday on Monday, so volumes will be light and volatility high. There is no top tier economic data from Europe or the United States but Canada will release Q1 GDP (exp: +4.0% annualized).