New Zealand dollar edges lower, business confidence next

• New Zealand Business Confidence expected to rebound

The New Zealand dollar is slightly lower on Wednesday. NZD/USD is trading at 0.5937 in the North American session, down 0.13%.

The US dollar has been on a tear against the major currencies. Everything seems to be clicking for the greenback – the US dollar index is at a 10-month high, while 10-year US Treasury yields have hit their highest level since 2oo7.

The US economy remains strong despite high interest rates. The Federal Reserve held rates last week, but the pause was hawkish as the Fed warned the markets to expect a ‘higher for longer’ rate path as it battles to lower inflation to the Fed’s 2% target.

The New Zealand dollar has held its own against the US dollar in September, although NZD/USD was pummelled in August when it plunged 3.9%.  That downturn can be attributed to a large extent to the deterioration in China’s economy, as the Asian giant is New Zealand’s largest trading partner.

Major central banks are looking to wind up their aggressive tightening cycles and the Reserve Bank of New Zealand is no exception. The New Zealand economy is getting squeezed by weak domestic consumption and reduced global demand for exports. The central bank has projected a recession and an end to tightening would make sense if it weren’t for inflation running at a 6% clip in the second quarter, double the upper band of the 1-3% target range for inflation. Unless inflation falls quickly, there’s a strong chance that the RBNZ is not yet done with rate increases.

We’ll get a look at New Zealand’s ANZ Business Confidence on Thursday. The index improved to -3.7 in August and is expected to push into positive territory in September, with a market consensus of 5.0.

The US releases third-estimate GDP for August on Thursday, with a market consensus of 2.0%. This would mark a downward revision from the second estimate of 2.1% and the preliminary estimate of 2.4%. The US economy continues to post respectable growth figures despite the Federal Reserve’s sharp tightening, as the labour market has remained strong and consumers continue to spend.

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NZD/USD Technical

• NZD/USD tested resistance at 0.5948 earlier. The next resistance line is 0.6002
• There is support at 0.5908 and 0.5854

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