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Business confidence up, dollar leaps

Tuesday 31st May 2011

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The New Zealand dollar surged to a new post-float high after a key survey of business sentiment showed a strong lift in confidence.

The National Bank's monthly Business Outlook showed a net 38% of businesses expected better times for the economy in the coming year. That is up 24 points on the reading in April.

General business confidence had lifted 47 points in two months, more than reversing the decline in March following the devastating Christchurch earthquake in February, National Bank chief economist Cameron Bagrie said.

The NZ dollar, which had topped US82.15c around noon yesterday before falling away to US81.50c shortly after 8am today, had risen since then and was holding around US82.15c again before the Business Outlook was published at 1pm.

The kiwi leapt to above US82.50c, according to Reuters data, on the survey results. That is the NZ dollar's highest level against the greenback since being floated in 1985.

The survey found a net 40% of businesses expected better times ahead for their own business, up 10 points on April’s reading.

Firms’ own activity expectations were now higher than pre-earthquake levels, and were at levels last seen in March to May of 2010, Bagrie said.

Other indicators continued to turn for the better with profit expectations, employment and investment intentions all lifting.

A net 34% of businesses expected to be raising prices over the year ahead, with the increase most pronounced in the service sector.

"The lift is not worrying, as yet, but watch this space," Bagrie said.

The composite growth indicator from the survey continued to strengthen, and was pointing to 4-1/2% economic growth in the year ahead.

Bagrie queried whether the improvement in business confidence would be matched by reality, pointing out that this time last year the composite indicator from the survey was pointing to the same lofty rate of expansion over the year ahead as this month’s survey.

Reality failed to live up to expectation then, he said.

"But for what it’s worth, this indicator is firmly pointing up."



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