Bits and bobs

The early part of last week was dominated by news from offshore. At a major central bank conference, the Federal Reserve’s Chairwoman Janet Yellen hinted that the Fed might be preparing to raise interest rates sooner. But while the US economy continues to gradually improve, the European economy continues to flounder. Speaking at the same conference, the head of the European Central Bank, Mario Draghi, hinted that the ECB is considering moves in the opposite direction to the Fed – potentially undertaking further monetary policy easing to combat falling inflation.

If they follow through on those signals, that would favour a stronger US dollar, a weaker euro, and on balance a lower New Zealand dollar. We saw a little of that sentiment come through last week, with the kiwi falling below 84 cents. We expect it to fall further yet, averaging about 83c through to the end of this year.

Aside from offshore events, another factor putting downward pressure on the NZ dollar over the last month or so has been tumbling dairy prices. And we’re starting to see weaker dairy prices permeate New Zealand’s economic data as well.

Business confidence fell for the sixth straight month in August. While sentiment remains substantially positive on balance, it’s now more consistent with the middling pace of economic growth we saw over 2011-12, when GDP grew around 0.7% per quarter on average. Confidence was down across all of the broad industries surveyed, though the agricultural sector was understandably the most downbeat of the bunch.