- The New Zealand dollar has been belted in Asia as business confidence fell to the lowest level since mid-2008.
- The NBNZ Business Outlook Index has fallen sharply since the New Zealand general election in September 2017.
- JP Morgan Economists says there’s a meaningful chance the RBNZ could cut official interest rates again.
The New Zealand dollar is getting belted in Asia, cascading lower following the release of an ugly business confidence read in August.
The NZNZ Business Outlook Index slumped to -50.3% in the latest survey, below the -44.9% reading seen in July. It had been as high as +24.8% in June last year, prior to the New Zealand election.
The August reading was the lowest level since April 2008, a period when the New Zealand economy was in recession.
The NZD/USD has fallen sharply in response, currently trading at .6656, a decline of 0.88%.
“Since the change of government, business confidence has now fallen to recessionary levels,” says Ben Jarman, Economist at JP Morgan.
“New Zealand firms are facing both a cyclical slowdown in growth and a shift in government policy that re-distributes income away from them, and toward households. Both clearly push business confidence lower.
“For a market that has only recently begun to take seriously the Reserve Bank of New Zealand’s (RBNZ) acknowledgement of a rate cut scenario, these data therefore add further weight to dovish outcomes.”
Jarman believes there is a reasonable risk the Reserve Bank of New Zealand could cut rates again.
“We continue to put the chance of an easing by the RBNZ at around 30%,” he says.
At its August monetary policy statement, the RBNZ said the direction of its next rate move could be “up or down”.
“We expect to keep the overnight cash rate at this level through 2019 and into 2020, longer than we projected in our May Statement,” it said.
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