NZ bus. confidence soft, but NZ dollar rises

The New Zealand dollar has extended its rally as it closes in on 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 ice cold

Business confidence for March posted a reading deep in negative territory. The ANZ Business Confidence survey came in at -41.9, which was actually an improvement from the February reading of -51.8 points. Still, the survey has recorded only one gain in the past 12 releases, which points to ongoing pessimism about the economic outlook.

The reading comes on the heels of the Westpac Consumer Sentiment release 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 surge in Omicron cases in New Zealand.

The ANZ survey found that inflationary pressures are accelerating throughout the economy, and inflation expectations were also on the rise. Businesses anticipated inflation of 5.51%, a new record high, compared to the February reading of 5.29%. These numbers are much higher than the RBNZ’s target band of 1%-3%. According to the ANZ, inflation pressures are “simply off the charts”, with the surge in commodities due to the Ukraine war driving up inflation.

In the US, the Federal Reserve has finally embarked on its rate-tightening cycle, with a 1/4 point rise earlier this month. Inflation hit a staggering 7.9% in February, which has prompted more speculation that the Fed might resort to salvos of 1/2 point cuts in order to bring inflation back down. The Fed has traditionally hiked or trimmed rates in 0.25% increments, but with the Fed playing catchup with inflation, it may have to resort to larger hikes to put a dent in rising prices. Fed Chair Powell signalled to the markets last week that the Fed would do whatever was needed to wrestle down inflation, including implementing 0.50% hikes.

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NZD/USD Technical

• 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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