First Test for NZD/USD Buyers After Business Confidence Declines

NZD/USD experienced a decline of 4 cents in 2024, causing the NZD to USD rate to dip below 0.60, but it resurfaced again above this level last week. This downward movement in the pair has led to a shift in sentiment toward pessimism regarding the larger trend, but in the short term buyers have been having a go for about a week.

NZD/USD Chart Daily – Buyers Facing the 200 SMA

One of the primary drivers behind the bearish trend since the start of the year is the market’s perception of a less dovish stance from the Federal Reserve. As expectations for a rate cut by the Fed in June fall, investors have become more bullish on the US dollar, resulting in its appreciation against the New Zealand dollar. However, the USD is going through a period of retreat, which has sent NZD/USD above 0.60 but the 200 SMA (purple) is acting as resistance. Last night the business confidence showed a massive dive in Q1, which is not a good thing and will be another drag on the Kiwi trying to break above the 200 daily SMA.

The New Zealand Quarterly Survey of Business Opinion (QSBO) from the New Zealand Institute of Economic Research (NZIER)

• Business confidence dropped to -25%, down from -2% in the previous period.
• Capacity utilization decreased to 90.2%, down from 91.4% previously.

Key points highlighted by NZIER include:

• The post-election bounce in business confidence and activity observed in the final quarter of last year was short-lived.
• A net 24% of businesses in the March quarter expect a deterioration in the general economic outlook over the coming months on a seasonally adjusted basis.
• A net 23% of firms reported a decline in activity over the March quarter.
• Overall, the results suggest that higher interest rates are having their intended effects in dampening demand to reduce inflation pressures in the New Zealand economy.
• Additionally, a net 20% of financial services sector firms expect higher interest rates in a year.

The survey, which comprehensively analyzes businesses across various sectors and collects data on several economic indicators, paints a picture of declining business confidence and activity in New Zealand. The findings reveal that many businesses anticipate a deterioration in the economic outlook, reflecting a cautious sentiment among market participants. One significant factor influencing this sentiment appears to be the impact of higher interest rates.

The Q1 figures indicate that elevated interest rates are leading to a reduction in demand, as businesses adjust their investment plans and hiring intentions in response to tighter monetary conditions. This aligns with broader efforts to mitigate inflationary pressures within the New Zealand economy. Overall, this survey underscores the challenges faced by businesses in navigating the current economic environment, characterized by heightened uncertainty and an upcoming tightening monetary policy.

NZD/USD Live Chart