NZD/USD: Falling Business Confidence Rating Pulls the New Zealand Dollar

Jun 14, 2021 03:44 PM ET
NZD/USD: Falling Business Confidence Rating Pulls the New Zealand Dollar
  • New Zealand saw a decline in its business confidence index at -0.4 from a previous rating of 1.8. 
  • New Zealand's control of China's forestry market may face a setback in 2022 due to the latter's diversification. 
  • Housing prices in NZ may surge 10% by the end of 2021.

The NZD/USD pair traded at -1.30% in the week leading to June 11, 2021, twice the level it has lost year-to-date at -0.68%. The New Zealand dollar also lost 0.91% against the Japanese yen in the same week and traded at a monthly drop of -1.34%. An 8.1% decline in the US trade balance released on June 8, 2021, to -$68.90 billion from a previous reading of -$75.00 helped to tilt the US dollar against the NZD. Job openings (by JOLTs) in April 2021 also rose to 9.286 million from 8.288 million beating estimates at 8.30 million. 

Business confidence  

New Zealand saw a decline in its business confidence index at -0.4 from a previous rating of 1.8.

NZ Business Confidence

NZ Business Confidence

The index was higher into January 2021 at 9.4 due to New Zealand’s management of Covid-19. However, the cost of retail business and inflation has continued to push prices. There was an acceleration of cost expectations in May 2021 at 85.6 against 81.3 in April 2021. Inflation also rose by 2.33 against 2.22 in April 2021.

Log trade 

New Zealand's control of China's forestry market may face a setback in 2022 due to the latter's diversification.  Up to 80% of NZ’s $2 billion (NZ$2.8 billion) was earned from the log trade with China in 2020. However, there has been a decline in the crown forest with much of New Zealand’s land currently in private hands. Log trade also makes up 5.2% of NZ’s total export making the economy the world’s leading exporter of the commodity. 

China’s willingness to pay top-dollar for logs is viewed as a push towards self-sufficiency even after signing a free-trade agreement (FTA) in January 2021. The Asian economic powerhouse also forms NZ’s largest market for its dairy produce. April 2021, saw the mean milk prices surge 12% to an 11-month high since December 2020. In the same period, log prices have in turn gained 18%.  

House prices  

New Zealand’s ASB bank has predicted that house prices may continue to grow into 2022 due to the cost of raw materials and inflationary pressures in the country. In 2020, prices gained 27% and may surge 10% by the end of 2021. The prices are expected to soar 5% by the end of 2022 due to the boom in the property market as a result of low mortgage rates. 

Mortgage rates offered by NZ banks

Mortgage rates offered by NZ banks

ANZ's 5-year fixed-term rate at 4.39% ranked highest among the major banks with ASB at 3.69%. The Bank of China also lowered rates at 3.35% for the 5-year fixed term and 2.15% for 1.5 years fixed term. 

6-month analysis of NZ mortgage rates

6-month analysis of NZ mortgage rates

Mortgage rates for 0.5 years (fixed-term) rose close to 6.0% in 2020. The rates have since been declining into 2021.

New Zealand’s business PMI rose to 58.6 from 58.4 indicating the economy is still expanding as investors continue to look into costs and inflationary targets. To handle job inequalities and prevent child poverty, the government raised welfare weekly payouts by NZ$55 ($39.50). in its budget estimates. Additionally, NZ is working on bilateral trade agreements with the EU and the UK. Economic analysis position’s GDP growth at 2.9% by FY 2021 (ending in June 2021). 

Technical analysis

NZD/USD Chart

NZD/USD Chart

The NZD/USD trading chart shows that the pair's price (0.71432) is moving below the 9-day EMA. The 14-day RSI indicates low buying action at 44.17. With the slight volume increase, we may see an actual price reversal after the 0.71788 resistance level is broken as opposed to the price ranging since April 19, 2021. 

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