New Zealand's long-term credit rating outlook was cut to negative by Fitch within the last 15 minutes. In their report, Fitch stated that the island country could fall into a Japanese-style low-growth trap. The revisions reflects the rating company's "concern about the medium-term growth outlook for New Zealand given its persistently large current account deficit," the report said. To finance this deficit, the country has had to take on "rising foreign indebtedness," that should be taken with caution. Such fiscal deterioration requires New Zealand to exhibit stronger fiscal adjustments if it seeks to improve its credit outlook. Fitch also stated that it would take a 4.5 percentage point of GDP reduction to reduce the current account balance so that the level of foreign debt financing matches that which the country finances abroad.
Our chart below shows the immediate reaction of the market to the news. The NZD/USD plummeted approximately 50 pips. Since the start of the session, the pair has declined 1.1% while the NZD/JPY has fallen 1.4%.
Al Bawaba
