NZD breaks 71 but beats a hasty retreat

The New Zealand dollar climbed to a three-week high on Tuesday, only to reverse directions and surrender those gains. In the North American session, NZD/USD is trading at 0.7021, down 0.06% on the day. Earlier in the day, the pair crossed above the 0.71 level for the first time since June 23.

Business confidence breaks out of slump

New Zealand’s NZIER Business Confidence rebounded in impressive fashion in the second quarter. The survey found that 10% of businesses expected economic conditions to improve in the next six months, a strong turnaround from Q1, when 8% of businesses projected a deterioration in conditions. The business confidence reading was notable in that it broke a streak of 14 straight quarterly declines, dating back to 2017.

Businesses reported an increase in hiring and investment, but also noted labour shortages and disruptions in supply chains, as supply has been unable to keep up with pent-up demand, which has been unleashed after the numerous lockdowns. This has resulted in stronger inflationary pressures, which has raised expectations that the Reserve Bank could respond with rate hikes sooner rather than later.

Investors will now shift their attention to the FOMC minutes, which will be released on Wednesday (18:00 GMT). The minutes may provide some guidance as to the timing of the Fed’s next move. The jump in US inflation had raised speculation about the Fed tightening policy, but Fed Chair Powell has insisted that the surge in inflation is transient and will not affect Fed policy.

Still, the Fed surprised the markets last month, when it projected raising interest rates twice in 2023. Previously, most Fed members had said that rates would not rise prior to 2024. Friday’s US job report appeared to ease expectations of an earlier move. Although nonfarm payrolls beat expectations, the unexpected jump in the unemployment rate signals spare capacity in the labour market.

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NZD/USD Technical

• NZD/USD tested resistance at 0.7096 earlier in the day. This is followed by 0.7160
• On the downside, the pair has support at 0.6957 and 0.6882

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