The NZD is struggling.
The important New Zealand business confidence data, which I pointed out this week, has printed another low. We saw the the RBNZ domestic forecast are based partly on the business confidence data. Upon reading the RBNZ minutes we were able to connclude that:
- The RBNZ's domestic forecasts are based on the channels which impact the NZ economy and the highest levels are, 'trade, financial markets and confidence business/uncertainty'
This is the fresh driver I was looking at to start looking for AUDNZD longs again, where I wrote on Tuesday August 27:
The NZD ended firmer last week on Governor Orr's comments that the RBNZ can afford to do whatever it takes to support the New Zealand economy, but they can afford to wait and observe what is happening. Moreover, Orr stated that they will see what the situation is like in November and will cut if necessary. This now means that a rate cut in September is unlikely for the RBNZ. This put a near term ceiling in AUDNZD at the 1.0600 level which is currently being tested now. I have closed my AUDNZD longs for now from August 06 and 07 and seeking a fresh driver to take the AUDNZD higher. One data point I am particularly looking at is the business confidence data out later this week.
See here for full article.
So, my bias is back on for a NZD short. Not only has business confidence plunged to an 11 year low, but there is more for the central bank to worry about in the form of inflation expectations. These dropped from 1.81% to 1.70% and the latest survey saw further falls in employment and profits. The probability of a RBNZ rate cut is now at 86% for its November meeting. I'm looking to pair it with either the AUD or JPY pair. NZDJPY shorts on a risk off tone looks to have plenty of downside potential.
