NZ dollar falls as business confidence sinks to 6-year low, US jobs data eyed

The New Zealand dollar fell after figures showed business confidence sank to a six-year low this month, stoking speculation the Reserve Bank will be prepared to make deeper cuts to interest rates to revive an economy showing little sign of accelerating inflation.

The kiwi fell to 64.21 US cents as at 5pm, in Wellington, from 64.53 cents at the New York close on Friday. The trade-weighted index fell to 69.49 from 69.98.

The ANZ Business Outlook showed a net 29 percent of businesses surveyed are pessimistic about the general economy, while  the measure of firms’ own activity expectations fell 7 points to +12, also a six-year low. For agriculture, a net 28 percent saw worse times ahead, a record low. Inflation expectations were unchanged at about 1.7 percent, below the 2 percent mid-point of the central bank’s target band.

“The business confidence survey was indeed pretty horrible and the market reacted as it should,” said Imre Speizer, senior market strategist at Westpac Banking Corp. “It starts to speak to our view that we will get lower than a 2.5 percent official cash rate. Business confidence is falling away pretty fast.”

The OCR is currently at 3 percent and the Reserve Bank’s next opportunity to review the rate and its economic forecasts is with the Sept. 10 monetary policy statement. It has two further opportunities, officially, this year, at its OCR review on Oct. 29 and the next full MPS on Dec. 10.

The kiwi had already weakened against a broadly stronger greenback after US Federal Reserve vice chair Stanley Fischer told a central bankers’ conference at Jackson Hole, Wyoming, at the weekend that the Fed remained on track for lift-off this year and that the “door remains open” to a September hike.

US payrolls data for August, due out on Friday in the US, are also expected to be negative for the kiwi, with the world’s biggest economy forecast to have added 235,000 jobs this month, up from 215,000 in the previous month. Chinese manufacturing figures for manufacturing, due out tomorrow, will also be closely watched, Speizer said.

The kiwi may trade between 62.50 US cents and 67.50 cents this week, according to a BusinessDesk survey of 10 currency advisers today. Six expect the kiwi to decline, two say it may gain and two bet it will remain largely unchanged. Stronger US jobs data will increase the chance of a Federal Reserve interest rate hike next month, they said.

The New Zealand dollar fell to 89.78 Australian cents after the confidence survey from 90.20 cents on Friday. The kiwi fell to 57.05 euro cents from  57.50 cents on Friday and dropped to 77.76 yen from 78.33 yen. It fell to 4.0961 yuan from 4.1372 yuan and sank to 41.62 British pence from 41.93 pence.

The two-year swap rate rose about 3 basis points to 2.76 percent and the 10-year swaps rose 2 basis points to 2.95 percent.

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