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Kiwi consolidates on strong business confidence; US Fed decision due tomorrow morning

Published December 19, 2018

By Phil Lynch

The New Zealand dollar has lifted over the past 24-hours, following an improvement in the ANZ Business Confidence Survey results, and another rise in dairy prices. However, it will be tomorrow where the FX Christmas presents are all delivered – with the Federal Reserve Rate Decision, New Zealand GDP data, Australian Unemployment and a whole host of other major events. We may not all like what we get given, with volatility a likely outcome.

Tomorrow’s Main Event – the Federal Reserve Rate Decision

The US Federal Reserve is widely expected to raise rates when it meets tomorrow morning. However, confidence in the December rate hike has been waning these last few days with markets now pricing in just a 66% chance of the Fed hiking. This uncertainty means there will almost certainly be some exchange rate movement when the announcement is released at 8:00 AM NZ time.

Further to this, markets will be looking for guidance as to the Federal Reserve’s rate hikes in 2019. Earlier this year 3-4 were expected for 2019, but that has now been significantly reduced to 1-2 hikes. Not without an opinion, President Trump has also been vocal with a tweet that was critical of the Fed’s rate hikes.


President Trump looks over the should of Fed Chairman Jerome Powell


NZ GDP Data to Follow

Later tomorrow morning, Statistics New Zealand will be releasing New Zealand’s Q3 GDP data. Markets are expecting a 0.6% rise (quarter on quarter) with the annualised number coming through at a respectable 2.8%. This will be a key indicator for the New Zealand dollar as we head into 2019 – with the growth numbers showing the true output in an environment where business confidence has been low.

Business Confidence Lifts the Kiwi

Yesterday the ANZ published their monthly Business Confidence report for New Zealand, and this showed confidence levels rising from -37.1% to -24.1%. Additionally, 13.6% of firms now expect their ‘Own Activity’ to lift. The only notable downside was from the agricultural sector, who expected business conditions to deteriorate. The kiwi showed an immediate 20 points lift and went on to climb throughout the day.

The chart below shows the changing mood of New Zealand businesses, with the recent lift in Business Confidence following reasonable inflation and low levels of Unemployment.