Insights 
VT 
New Zealand recorded a trade deficit of NZ$1.19 billion in August, a noticeable increase from the NZ$578 million shortfall in July. Over the past 12 months, the rolling deficit decreased to NZ$2.99 billion, compared to NZ$3.94 billion previously.
Exports declined to NZ$5.94 billion, down from NZ$6.71 billion in July. Meanwhile, imports saw a slight decrease, totalling NZ$7.12 billion, compared to NZ$7.28 billion in the previous month.
Trade Deficit Implications
The widening monthly trade deficit is a clear near-term negative for the New Zealand dollar. The sharp fall in exports is the most concerning part of this data, suggesting global demand for our goods is weakening. We see this as a reason to anticipate downward pressure on the currency against major trading partners like the US dollar.
This export weakness aligns with recent data showing a continued slowdown in China, New Zealand’s primary export market. Manufacturing PMI data out of China for August 2025 dipped back into contraction territory at 49.8, curbing appetite for the raw materials we supply. Looking back at similar periods in 2022, a slowdown in China was a strong headwind for the NZD.
The slight dip in imports also suggests that domestic demand inside New Zealand may be cooling off. This reduces the pressure on the Reserve Bank of New Zealand to pursue further interest rate hikes, a factor that has supported the currency over the past year. We believe the market will now further push back expectations for any tightening, removing a key pillar of NZD strength.
Trading Strategies for NZD
For traders, this environment favors strategies that profit from a falling or range-bound NZD. We think buying put options on the NZD/USD is a straightforward way to position for a potential decline while limiting risk. One-month implied volatility has recently increased to 9.8%, indicating that the market is already pricing in more chop, but this is still moderate by historical standards.
The narrowing annual deficit, however, cautions against overly aggressive bearish bets. This longer-term improvement shows some resilience that could prevent a dramatic currency collapse. A bear put spread, which profits from a moderate fall in the NZD while capping potential losses and lowering entry cost, could be a more prudent approach than selling futures outright.
