NZ dollar falls with business confidence, soft Chinese, property buying curbs

Tuesday 31st October 2017

The New Zealand dollar extended its decline after business confidence fell, Chinese data was softer than expected and Prime Minister Jacinda Ardern confirmed that foreign speculators will no longer be able to buy houses in New Zealand from early next year.

The kiwi fell to 68.45 US cents as at 5pm in Wellington from 68.72 US cents as at 8am in Wellington from 68.58 cents late yesterday. The trade-weighted index fell to 72.61 from 72.78 yesterday.

Business confidence fell to a net 10 percent of firms negative about the year ahead, from a net zero reading with as many pessimists as optimists in September, according to the ANZ Business Outlook. In seasonally adjusted terms, business confidence fell to a net 8 percent negative from a net 16 percent positive. The bulk of responses were collected before the new government was formed "so this month’s survey primarily covers the uncertainty around the outcome and not the outcome itself. The latter will be next month’s story," said ANZ Bank New Zealand chief economist Cameron Bagrie.

Westpac Banking Corp strategist Imre Speizer said the survey pushed the dollar lower as "business confidence showed quite a pullback."

He also said news that China's official Purchasing Managers’ Index fell to 51.6 in October, compared with 52.4 in September weighed on the kiwi as did the announcement the new government is introducing an amendment to the Overseas Investment Act to classify residential housing as “sensitive”. This means non-residents or non-citizens can't purchase existing residential dwellings. Australians will be exempt as New Zealanders are in Australia, according to Ardern.

Speizer said a key level for the kiwi will be recent lows of around 68.20 US cents. While it is currently holding that level, a break below would open up a "good run lower," he said. Looking ahead, tomorrow's third-quarter labour data will be key, said Speizer. The median in a Bloomberg poll of 12 economists is for unemployment to be 4.7 percent and employment to be up 0.8 percent on quarter.

Earlier Tuesday, the new Minister of Finance, Grant Robertson, told Radio New Zealand that the more than 4 percent fall in the value of the New Zealand dollar since the election is also not a concern.

"Any volatility we've seen is a reaction to a change of government, that would have happened anywhere in the world and I'm sure the markets will see they can be confident in the government ... over time an equilibrium will be found," he said.

Markets are also awaiting news on who the next Federal Reserve governor will be with growing speculation US President Donald Trump is likely to appoint Federal Reserve Governor Jerome Powell, who is viewed as more dovish than other contenders.

The kiwi traded at 51.84 British pence from 52.12 pence yesterday and at 58.83 euro cents from 58.96 cents. It was at 89.15 Australian cents from 89.17 cents and 4.5359 yuan from 4.5506 yuan and traded at 77.47 yen from 77.79 yen. As was widely expected, the Bank of Japan announced during the trading day that it would stand pat on interest rates.

New Zealand's two-year swap rate fell 1 basis point to 2.14 percent and 10-year swaps dropped 6 basis points to 3.13 percent.

(BusinessDesk)

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