New Zealand’s business confidence has reached its highest level in over a decade, according to the ANZ’s Business Outlook (ANZBO) survey for November. More than three in five businesses say they feel more optimistic. This flood of capital has driven up the NZD/USD exchange rate, and it rose back up to about 0.5710 during the early Thursday Asian trading session. The upbeat mood is a symptom of a wider rebound in the New Zealand economy, boosted by plenty of local and global factors.
Here’s why the New Zealand dollar (NZD) is strengthening and soaring to close in on an 18-month high. The key ingredients have been a strong economy and the sound monetary policy laid down by the Reserve Bank of New Zealand (RBNZ). China has rapidly become New Zealand’s largest trading partner. Thus, any deterioration in China’s economic performance will quickly hit New Zealand’s level of exports to China and the value of the NZD.
Boost in Business Confidence
According to the latest ANZBO survey, overall business confidence has jumped up nearly 40 points to highs of 11 years. Much of this increase is due to increased activity levels in multiple sectors. Most importantly, it demonstrates that businesses are increasingly optimistic about the economic conditions that lie ahead.
Increased confidence like this typically causes businesses to invest more and hire — further fanning the flames of economic progress. This newfound confidence will be important as New Zealand continues to deal with the tricky side of a tightening global trade phenomenon and broader economic headwinds.
“The improvement in business confidence is rooted in an improvement in experienced activity, not just hope.”
We find that the NZD/USD exchange rate is quite sensitive to news that might signal a slowdown in the Chinese economy. As China becomes New Zealand’s largest trading partner, New Zealand becomes increasingly reliant on the demand for its exports from China. This is where bad news about China’s economic performance might come out. This threat could decrease New Zealand’s export potential, hurting the island nation’s economic and currency value prospects.
Impact of External Economic Factors
On the flip side, any good news from China would be supportive to demand for the Chinese commodities New Zealand exports, helping to strengthen the NZD. Thus, keeping a close eye on China’s economic indicators will continue to be key in forecasting movements in the NZD/USD pair.
The third piece of data impacting short-term market sentiments is the sharp recent decline in US Initial Jobless Claims. For the week ending November 22, claims decreased by 6,000, settling at a seasonally adjusted 216,000. That’s the lowest level since April and 12,000 claims below economists’ expectations of 225,000 claims. A robust US labor market is a good defense against large USD losses. This determines, among other things, its value compared to other currencies such as the NZD.
The Reserve Bank of New Zealand’s monetary policy is a key factor driving the NZD’s high valuation. The much vaunted interest rate differential between New Zealand and other countries can completely distort currency movements. Higher yielding currencies are typically sought after by investors, causing them to gravitate toward countries with stronger or more consistent economic policies.
Influence of Central Bank Policies
As speculation circulates regarding US President Donald Trump potentially appointing Kevin Hassett as successor to Federal Reserve Chairman Jerome Powell, market participants are keenly observing how this might influence US monetary policy. Any shifts in interest rates or economic outlook from the Fed could have ripple effects on global currency markets, including the NZD/USD exchange rate.
Additionally, macroeconomic data releases inside New Zealand are an excellent and invaluable window into the current condition of the economy. These figures are instrumental for investors looking to gauge future trends and make informed decisions regarding currency exchange.
Furthermore, macroeconomic data releases within New Zealand provide key insights into the state of the economy. These figures are instrumental for investors looking to gauge future trends and make informed decisions regarding currency exchange.