NZ Business Confidence Soft, But NZ Dollar Rises

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The New Zealand dollar has extended its rally as it closes above the symbolic 70 level. In the European session, NZD / USD is trading at 0.6975, up 0.59% on the day.

NZ business confidence remains icy cold

Business confidence for March published a reading deep into negative territory. The ANZ Business Confidence survey came in at -41.9, which was actually an improvement on the February reading of -51.8 points. However, the survey has recorded only one gain in the past 12 editions, which shows continued pessimism about the economic outlook.

The reading comes on the heels of the release of Westpac Consumer Sentiment for Q1, which fell from 99.1 to 92.1, its lowest level since 2008. Consumers reported being most concerned about soaring inflation and the rise of Omicron cases in New Zealand.

The ANZ survey found that inflationary pressures are accelerating across the economy, and inflation expectations have also risen. Businesses forecast inflation of 5.51%, a new record high, compared to the February reading of 5.29%. These numbers are much higher than the RBNZ target group of 1% -3%. According to the ANZ, inflationary pressures are “just outside the charts”, with the rise in commodities due to the Ukrainian war driving up inflation.

In the U.S., the Federal Reserve has finally embarked on its rate-tightening cycle, with a 1/4-point increase earlier this month. Inflation hit a staggering 7.9% in February, prompting more speculation that the Fed could resort to bailouts of 1/2-point cuts to bring back inflation. The Fed has traditionally raised or cut rates in 0.25% increases, but with the Fed playing catch-up with inflation, it may have to resort to larger rises to put a dent in rising prices. Fed Chairman Powell signaled to the markets last week that the Fed will do everything necessary to fight down inflation, including implementing 0.50% hikes.

NZD / USD Technique

  • NZD / USD continues to break above resistance lines. There is resistance at 0.7061 and 0.7133
  • There is support at 0.6885 and 0.6813

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