NZ Dollar Falls

Business Confidence Drops to 8-Year Low

The New Zealand Dollar quickly became the worst performing major during early Thursday’s trading session. How did this happen? Well, ANZ’s business confidence survey dropped to -39.3 from -10.1 in October. Not only was it such a volatile decline, but it was also the most negative outcome since March 2009, more than 8 years ago.

The survey revealed that there was a combination of uncertainty around changing government policy, a softer housing market and the availability of credit. As Market Analyst David Cottle mentioned, politics have been the New Zealand Dollar’s problem for months and its influence on the currency probably isn’t over. With that in mind, we got a taste of this today.

There was a pinch of optimism in the survey though. Inflation expectations rose to 2.3% from 1.9% and are at the highest since October 2014. This is interesting because all else being equal, lower business confidence can actually translate into hurting inflation if companies push back on investing and expanding. However, keep in mind that the Kiwi has been falling since late July and that might pressure prices to rise.

Regardless of what this survey may mean for inflation, the Reserve Bank of New Zealand sees their official cash rate rising in the second quarter of 2019. Their projections incorporated the preliminary estimates of the impact of the new government’s policies. However, the markets envision the next hike to occur by the end of 2018. Today’s disappointing confidence cooled some of those hawkish bets as local bond yield fell.

On a daily chart, NZD/USD appears to be trying to resume a down trend since July 27. This was after a brief recovery following an inverted hammer that formed on November 20th. During this bounce, NZD/USD broke above a falling trend line established since September 19th. Since then, it appears to have formed a new flatter resistance line and turned back down.