The New Zealand dollar is in positive territory on Friday. NZD/USD is trading at 0.5722 in the European session, up 0.46% on the day.
New Zealand’s manufacturing sector improved in February, as Manufacturing PMI rose to 53.9, up from 52.5 in January. This was the highest level since August 2022. All sub-index values recorded increases, including production, new orders and employment. The Manufacturing PMI has now recorded expansions for two consecutive months after a prolonged contraction of close to a year.
The services sector has showed a similar trend, recording weak expansion in January at 50.4, after 10 straight months of contraction. The Services PMI will be released on Monday and is expected to rise to 50.7. A slight improvement in both services and manufacturing would signal that the New Zealand’s economy appears to be moving in the right direction.
US tariffs a headache for RBNZ
The Reserve Bank of New Zealand has been aggressive in its easing cycle, chopping rates by 50 basis points in October, November and February. The cash rate is down to 3.75%, its lowest level since October 2022. The central bank plans to continue cutting rates but in a more gradual fashion. Governor Adrian Orr signaled at the February meeting that he expects to cut rates by 25 basis points in both April and May, provided that economic conditions evolve as projected.
The escalation in global trade tensions is on the minds of RBNZ policymakers. The US hasn’t targeted New Zealand with tariffs but a trade war 2.0 between the US and China could damage the fragile New Zealand economy as China is New Zealand’s largest trading partner. A global trade war due to US tariffs would likely raise inflation and hurt the RBNZ’s battle to lower inflation to its 2% target.
NZD/USD Technical
- NZD/USD is testing resistance at 0.5707 and putting pressure on resistance at 0.5731.
- The next resistance line is 0.5766.
- 0.5672 and 0.5648 are the next support lines.
