The New Zealand dollar is sharply lower on Friday. NZD/USD is down 0.61%, trading at 0.6130 in the European session at the time of writing.
New Zealand Manufacturing PMI Misses Estimate
New Zealand’s manufacturing sector contracted for the 14th straight month in May. The manufacturing PMI fell to 47.2, down from 48.9. New orders have contracted for 21 consecutive months and production decelerated in May. Manufacturers expressed pessimism about New Zealand’s economic slowdown.
The New Zealand economy has been struggling. The past two quarters showed negative growth, indicating a recession, and GDP has contracted in five of the past six quarters. The Reserve Bank of New Zealand is under pressure to lower interest rates which are currently at 5.5% and provide some relief to businesses and households.
The problem for the central bank is that inflationary pressures remain high and are only falling slowly. The consumer price index rose 4.0% y/y in the March quarter, down from 4.7% in Q4 2023 but well above the upper band of the RBNZ’s 1% to 3% target range. The RBNZ meets next on July 10th and is expected to hold rates for the eighth consecutive time.
US PPI Softer Than Expected
In the US, producer prices were softer than expected in May. PPI fell by 0.2%, below the April reading of 0.5% and lower than the market estimate of 0.1%. Yearly, PPI ticked lower to 2.2%, down from a revised 2.3% in March and below the market estimate of 2.5%.
The soft PPI data comes on the heel of the May CPI report which also decelerated. The decline in these two inflation reports have raised expectations of a September rate cut, with a 61% of a quarter-point cut currently, compared to 46% just a week ago, according to CME’s FedWatch.
NZD/USD Technical
- NZD/USD is testing support at 0.6140. Below, there is support at 0.6065
- 0.6178 and 0.6253 are the next resistance lines