Kiwi rises as business confidence improves

The New Zealand dollar has posted gains in the Tuesday session, erasing the losses seen on Monday. Currently, NZD/USD is trading at 0.7126, up 0.320 on the day.

NZ business confidence improves

There was good news from the New Zealand Institute of Economic Research (NZIER) Business Confidence Index. The report remained in negative territory in Q4 of 2020, but the reading of -6 was a marked improvement over the Q3 reading of -40 points. In fact, the latest figure was the strongest reading since Q3 of 2017. Business confidence took a beating in 2020, plunging as low as -70 in Q1 of 2020, as the government responded to the advent of the Covid-19 crisis by shutting down much of the economy. Since then, the level of pessimism in the business sector has been easing, but the Q4 release showed that confidence is on its way up. The report found that construction activity was a bright spot in the economy, and that employment and business investment were projected to improve in 2021.

New Zealand is a major dairy exporter, and 2021 started on a positive note, as the GDT Price Index posted a solid gain of 3.9 per cent. With global demand expected to pick up in 2021, New Zealand’s economy, which is heavily dependent on exports, should benefit, as should the New Zealand dollar.

Will New Zealand’s central bank lead the charge and raise interest rates? With Covid-19 still uncontrolled and global economic conditions weak, a change in the current ultra-low rate environment seems a long way off. However, New Zealand has weathered the Covid storm remarkably well and the country’s GDP has returned to pre-Covid levels. According to a report by Capital Economics, as a result of an overheated housing market and stronger inflation, the RBNZ could become the first major central banks to raise interest rates. Still, the report doesn’t expect any rate hikes before H2 of 2022.

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NZD/USD Technical

• There is resistance at 0.7207, followed by resistance at 0.7284.
• 0.7086 has strengthened in support on Tuesday, as NZD/USD has posted gains. Below, there is support at 0.7042
• The pair remains within striking distance of the 50-MA line, at 0.7059. A close below this line would be a bearish technical signal.

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