New Zealand business confidence plunges
The week started on a sour note, as ANZ New Zealand Business Confidence plunged in January, with a reading of -51.8. This was a sharp drop from the December read of -23.2. Business confidence remained in negative territory for an eighth straight month and the January release indicated that over 50% of businesses are pessimistic about economic conditions in the next 12 months.
The primary drivers hurting confidence are an upsurge in COVID infections and shortages of materials and workers, which have jacked up operating costs. With oil prices climbing above 100 dollars a barrel last week, businesses will continue to struggle with higher costs.
The financial markets remain focused on Ukraine, where the Russian invasion has slowed and fierce fighting is reported, but details are sketchy. Russian and Ukrainian officials met on the Belarus-Ukraine border to discuss a cease-fire, although expectations for a breakthrough were low. Still, if there had been any positive developments from the meeting, we would have seen risk appetite return and a push of the US dollar lower.
In the meantime, the dollar remains strong, as jittery investors have snapped up the safe-haven currency. US Treasury yields have been on an upswing and the dollar index has risen to 96.95, up 0.34%.
The Ukraine crisis has led to significant volatility in the market, which has increased after the US and Western Europe imposed stronger sanctions against Moscow on the weekend. The EU is financing and delivering weapons to Ukraine and Germany has promised weapons as well. The West has also cut off some Russian banks from SWIFT, the global fund transfer system, although it has not targeted transfers related to energy.
Russia is already feeling the sanctions bite, as the Russian ruble fell sharply on the weekend and the Russian central bank responded by raising interest rates from 9.5% to 20% to boost the Russian currency. I expect more volatility in the forex markets during the week, based on developments in the Ukraine crisis.
NZD/USD Technical
- There is resistance at 0.6826. Above there is resistance at 0.6908
- 0.6647 is providing support, followed by 0.6550
