NZ dollar falls as business funk deepens

Thursday 29th August 2019

The New Zealand dollar fell after the latest business survey showed pessimism plumbing new depths and inflation expectations continuing to fall.

The kiwi was trading at 63.05 US cents at 5pm in Wellington - the day’s low and the lowest since September 2015 - from 63.37 cents at 8am. The trade-weighted index was at 70.53 from 70.83.

The latest ANZ Bank business outlook survey found a net 52.3 percent of respondents expect deteriorating business conditions in the coming year, up from 44.3 percent a month ago.

Even worse, a net 0.5 percent now expect their own businesses will fare badly - the lowest reading in more than a decade. That’s down from a net 5 percent who in July had expected their businesses to improve.

“It’s a shocker of a result, no question about that. Most of the components and detail of the report were dismal,” says Imre Speizer, currency stategist at Westpac.

The own activity indicator, “is a reasonable contemporaneous indicator of GDP activity so that bodes ill for the next couple of data points,” Speizer says.

The survey also showed inflation expectations fell from 1.81 percent to 1.70 percent, the lowest since late 2016. The Reserve Bank is tasked with keeping inflation around the mid-point of 1-3 percent, so the survey shows business thinks the central bank will fall short of its target.

About a third of the responses from the 395 respondents came in after the Reserve Bank surprised everybody on Aug. 7 and slashed its official cash rate by 50 basis points to a record low 1 percent.

Speizer says the RBNZ will be disappointed by the survey.

“There was a lot of debate whether that 50-point cut would be a booster or a depressor. You can actually argue it both ways,” he says.

Rather than stimulating people and businesses to invest because of lower interest rates, it could have instead alarmed people and got them wondering what bad news RBNZ had been looking at to prompt such an unusually large cut. OCR moves are traditionally in 25-point increments except in times of crisis like the Christchurch earthquakes or the GFC.

The survey comes against the generally uncertain global backdrop created by the US-China trade war.

Speizer says Westpac thinks the New Zealand dollar will go lower still.

The New Zealand dollar was trading at 93.74 Australian cents from 94.03, at 51.66 British pence from 51.89, at 56.88 euro cents from 57.19, at 66.79 yen from 67.26 and at 4.5183 Chinese yuan from 4.5376.

The New Zealand two-year swap rate edged down to a bid price of 0.8725 percent from yesterday’s close at 0.9281. The 10-year swap rate fell to 1.1475 percent from 1.2050.

(BusinessDesk)

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