NZD/USD Yawns as Business Confidence Improves

 | Aug 31, 2023 04:26AM ET

  • New Zealand business confidence rises
  • ADP Employment Change falls to 177,000

    • NZD/USD is almost flat on Thursday, trading at 0.5958 in Europe.

    h2 New Zealand Business Confidence improves again/h2

    New Zealand’s ANZ Business Confidence index accelerated for a fourth straight month in August. The index improved to -3.7, up from -13.1 in July. Business Confidence has been in negative territory for 26 consecutive months, but the August print was the highest since June 2021. The consensus estimate stood at -1.9 and the New Zealand dollar didn’t react. If the upswing continues, we should see a positive reading in the next month or two, which would be a milestone and likely give a boost to the New Zealand dollar.

    The business confidence report noted that inflation expectations dipped very slightly, from 5.14% to 5.06%. This is clearly incompatible with a 2% inflation target but the key question is whether the Reserve Bank of New Zealand will pause for a third straight time in October, in the hope that the benchmark rate of 5.50% will further cool the economy and push inflation lower.

    The RBNZ doesn’t meet until October 4th, with only one tier-1 event prior to the meeting, which is GDP on September 20th. The central bank will also be keeping a close eye on events in China, where the economy has been deteriorating. On Thursday, China’s Manufacturing PMI rose in July to 49.7, up from 49.3 in June, but this marked a fifth straight contraction.

    In the US, the markets await the non-farm payrolls release on Friday. The ADP employment report fell sharply to 177,000, down from an upwardly revised 371,000 and shy of the estimate of 195,000. The ADP release isn’t a reliable precursor to non-farm payrolls but still attracts attention as investors hunt for clues ahead of the non-farm payrolls release. The markets are expecting non-farm payrolls to fall to 170,000 in August, compared to 187,000 in July.