NZ dollar gets a lift from improving business confidence

The New Zealand dollar was higher against the US dollar after business confidence improved in December.

The kiwi traded at 68.48 US cents at 5pm in Wellington from 68.02 US cents at 8am and 67.91 cents yesterday, The trade-weighted index was at 74.86 from 74.38 yesterday.

The New Zealand dollar got a lift when the ANZ business outlook survey for December showed a net 24.1 per cent of firms surveyed expect general business conditions to deteriorate in the coming 12 months versus 37.1 per cent in November.

Business confidence has plunged since the Labour-led government was formed in October last year and implemented a series of policies that have impacted business.

These include lifting the minimum wage, changing immigration settings, implementing fuel taxes and proposing changes to the current employment law.

The kiwi had been range trading ahead of the outcome of the US Federal Reserve's last policy meeting of the year and domestic economic growth data for the third quarter, both due on Thursday.

"The market was short kiwi and the sentiment survey has upset the apple cart slightly because it was better than expected," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank. When investors are short kiwi it means they are betting it will fall further. Some of that positioning was pared back after the confidence survey.

Kelleher said, however, the main event this week will be the Fed's statement and forecasts.

While the Fed is widely expected to lift rates at this week's meeting, investors will be waiting to see if the Fed eases up on its plans for 2019.

According to its latest projections in September, the median view among policymakers was for three rate hikes in 2019. Recent commentary from Fed officials, including Chair Jerome Powell, has pointed to a softer stance. In late November Powell said interest rates were "just below" what the Fed considered neutral.

"The risk is that we get a dovish hike," said Kelleher, with the Fed signaling fewer rate hikes for 2019.

The Fed will be followed by third quarter GDP data, with the market expecting a lift of 0.6 percent quarter-on-quarter according to a Bloomberg poll.

The kiwi traded at 95.24 Australian cents from 94.61 cents yesterday after the Reserve Bank of Australia minutes from its latest policy review signalled risks that could disrupt household spending and the central bank's outlook for faster economic growth

The local currency was at 77.06 yen from 77.05 yen yesterday and increased to 4.7191 Chinese yuan from 4.6837 yuan. It traded at 54.22 British pence from 53.97 pence yesterday and at 60.31 euro cents from 60.03 cents.

New Zealand's two-year swap rate fell 2 basis points to 2.04 per cent; the 10-year swaps were down 1 basis point at 2.74 per cent.