Business confidence slumped, but does it matter?

Note: This section contains information in English only.
Source: Dukascopy Bank SA
"There are material headwinds remaining for the economy (a high NZD, a frail household savings rate) that stymie the potential for that feel-good factor to manifest into reality in its entirety,"
- Cameron Bagrie ANZ chief economist


Last Thursday, following RBNZ's meeting the Kiwi plunged most in nine months, with the corresponding index falling 0.9% against 16 major currencies. A day later a report from the ANZ showed confidence among New Zealand companies slipped in July, however, it was widely anticipated, thus, market reaction was muted. The NZD/USD currency pair found a strong support at 0.8559, while the fact a slight majority of pending orders placed to buy the Kiwi versus the Buck is suggesting traders are still betting on a rebound.

New Zealand companies facing higher borrowing costs and a stubbornly high exchange rate of the domestic currency. This is all a result of the RBNZ tightening process that started earlier this year and is still far from the end despite the central bank decision to take a pause. That was not a surprise that the ANZ Business Outlook survey showed that a net 39.7% of companies were still optimistic in July, while the reading is down from June's 43%. Moreover, this is the fourth straight monthly drop following a 20-year peak of 71% registered in February. Stronger inflationary pressure has led the central bank to raise its official cash rate four times since March, bringing the OCR to 3.50%. The RBNZ maintains that higher rates will guarantee a more balanced and sustained economic recovery. Nevertheless, keeping in mind the recent RBNZ meeting, confidence among companies is likely to strengthen in the coming months.
© Dukascopy Bank SA

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