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New Zealand Dollar Drops on Outlook, Business Confidence

New Zealand Dollar Drops on Outlook, Business Confidence

2011-10-26 00:28:00
Lujia Lin,
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THE TAKEAWAY: NBNZ surveys show deterioration in economic outlook and business confidence > Latest addition to soft data ahead of RBNZ meeting > Kiwi falls

The New Zealand Dollar fell after surveys showing a sharp drop in economic outlook and business confidence. The Kiwi, already under pressure from softer-than-expected inflation data and uncertainty surrounding Wednesday’s EU summit, continued its downward trend

New_Zealand_Dollar_Drops_on_Outlook_Business_Confidence_body_Picture_5.png, New Zealand Dollar Drops on Outlook, Business Confidence

Chart generated using Strategy Trader

According to the National Bank of New Zealand survey, the Activity Outlook gauge fell to 26.1 from 35.4 in October. The Business Confidence gauge plunged to 13.2 from 30.3 last month. In addition to recent reports pointing to weak consumer confidence and a manufacturing slowdown, the surveys imply further weakness in the South Pacific nation’s economy. Both indicators show the net percentage of companies expecting improvement.

The sentiment gauges come directly after the release of New Zealand CPI figures on Monday which showed a slowdown in price increases in the 3rd quarter. According to the inflation data, CPI net of the effects of a sales-tax increase was 2.5 percent YoY (well within the RBNZ’s target band of 1 to 3 percent), leading to a sell-off in the Kiwi. Today’s NBNZ surveys further dampens the outlook for rate increases ahead of the RBNZ rate decision later on Wednesday, with Credit Suisse OIS rates pricing in a zero chance of a rate hike.

With a series of soft data and the RBNZ likely to signal that rates will remain on hold for at least the remainder of the year, the New Zealand Dollar appears on track for a correction from the rally that had led it to be the third best-performing G10 currency in October. Meanwhile, risk sentiment tied to Eurozone developments will also continue to guide the Kiwi.

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