NZ dollar pares gains, business confidence next

• US GDP expanded by 2.1%
• ADP Employment slides to 177,000
• New Zealand business confidence expected to improve

The New Zealand dollar posted slight gains on Wednesday but then retreated, after sizzling on Tuesday with gains of 1%. In the North American session, NZD/USD is flat at 0.5970. Earlier, the New Zealand dollar touched the symbolic 0.6000 level for the first time since August 11th.

New Zealand Business Confidence expected to accelerate 

New Zealand releases the ANZ Business Confidence Index on Thursday. The indicator has been stuck in negative territory for over two years, but the business sector has been showing more optimism about the economic outlook and business confidence has been steadily moving towards zero, which separates optimism from pessimism.  In December 2022 business confidence fell to a staggering -70.2; since then, it has steadily accelerated and hit -13.1 in July. The consensus estimate stands at -1.9 for August, which means that a surprise to the upside would push the indicator into positive territory. A reading above zero would likely be bullish for the New Zealand dollar.

The July ANZ business confidence release indicated that inflation expectations had eased slightly, from 5.2% to 5.1%. This is quite high compared to the central bank’s inflation target of 2% but is still below the current inflation rate of 6.0%.

The Reserve Bank of New Zealand held rates at 5.50% in August and would like nothing more than to prolong the pause and provide a bit of relief to businesses and consumers who are straining under the weight of high interest rates. The RBNZ doesn’t meet until October 4th, but the only tier-1 event prior to the meeting is second-quarter GDP on September 20th. Of course, domestic data is not the RBNZ’s only focus and China’s economic woes will likely be a factor in the October rate decision.

In the US, second-estimate GDP for the second quarter came in at 2.0%, just shy of the 2.1% gain in last month’s initial estimate. This was below the 2.4% gain in the first quarter and is a strong signal that the US economy continues to cool down. The ADP employment report fell sharply to 177,000, down from an upwardly revised 371,000 and shy of the estimate of 195,000. The US releases the nonfarm payroll report on Friday, which is expected to fall from 187,000 to 170,000.

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NZD/USD Technical

• NZD/USD is testing support at 0.5968. Below, there is support at 0.5866
• There is resistance at 0.6029 and 0.6082

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