The New Zealand dollar is slightly lower on Friday after sharp gains a day earlier. NZD/USD is trading at 0.6163 at the time of writing, down 0.27% on the day. On Thursday, the New Zealand dollar jumped 0.76% as the US producer price index fell more than expected.
US PPI Softer Than Expected
The Federal Reserve meets on Sept. 18 and the meeting is live, as it’s unclear how deep the Fed will cut interest rates. This will mark the first interest rate cut since March 2020. The Fed is late to join the rate-cutting club, as most major central banks have already commenced a rate-cutting cycle in response to lower inflation. The Fed has widely telegraphed a rate cut but it will be a momentous event, all the more so given the uncertainty of the extent of the cut.
Market pricing of a rate cut continues to swing wildly. Thursday’s US producer price index dropped to 1.7% in August, down from a downwardly revised 2.1% in July and below the market estimate of 1.8%. This sent the odds of a 50-basis point cut surging to 41%, compared to 13% prior to the release.
The Fed would probably prefer to start the new rate-cutting cycle with a modest 25 bps move, but ever since the market meltdown in early August, an oversized 50 bps cut has become a strong possibility. The US labor market is showing clear signs of weakness and this has raised market fears that the US economy could enter a recession.
New Zealand’s manufacturing PMI remained in contraction mode in August. The PMI improved to 45.8, up from a revised 44.4 but shy of the forecast of 47. All of the key sub-indexes showed contraction. The manufacturing sector continues to struggle and has contracted for 18 straight months.
NZD/USD Technical
- NZD/USD is putting pressure on support at 0.6164. Below, there is support at 0.6142
- There is resistance at 0.6205 and 0.6223