Dollar rockets higher on more good economic news

The New Zealand dollar shot through the $US0.825 mark this afternoon after business confidence figure sere even more upbeat than expected.

The New Zealand currency had already this week breached its highest point since it was floated in March 1985 after a trifecta of good economic news: the highest monthly export figures ever recorded, dairy giant Fonterra’s announcement of a record payout of $8.0-8.10 per kg for the current season, and the announcement Chinese Investment Corporation was poised to invest $NZ6 billion in the New Zealand economy.

Today’s business confidence survey, from the National Bank, showed firms’ overall expectations for the economy had risen 24 points to a net positive of 38%.

Crucially, firms’ expectations of their own activity also soared, to a +40%.

Even more importantly, profit expectations rose from +8% to +24%; employment intentions rose from +6% to +13%, and investment intentions lifted from +6% to +15%.

All are now above their long-term averages, National Bank chief economist Cameron Bagrie said.

Mr Bagrie also noted cautiously that the survey hit similar peaks in the first half of last year, only to falter substantially over the winter. The Christchurch earthquakes had a similar negative effect.

However business mood surveys – the National Bank one, along with the New Zealand Institute of Economic Research’s quarterly survey of business opinion -  have previously shown premature optimism following economic downturns.

There was a similar premature pick up in business mood in both the early 1990s and the late 1990s, following economic recessions.

The second pick up in business mood, in both cases, turned out to signal the sustained economic recovery.

As noted by the National Business Review last week, underlying economic data about investment by firms indicates a sustainable recovery is under way, even though it has not shown up in the GDP figures just yet.

Agricultural data shows a surge in fertiliser use by farmers over the autumn. And one of the most significant things about yesterday’s record trade balance was not the huge export income but the fact that imports also rose, driven by a surge in firms importing both intermediate goods and plant and machinery.