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NZ PMI, US retail sales weigh on NZD

The New Zealand dollar is almost unchanged in the Friday session. NZD/USD is currently trading at 0.7070, down 0.04% on the day.

New Zealand manufacturing PMI  slides

The final New Zealand event this week was a disappointment. Manufacturing PMI for August took a dive, falling to 40.1 in August. This marked the first time that the PMI contracted in 2021 (a reading below 50.0 indicates a decline). The PMI pointed to a sharp slowdown, down from 62.2 in July. The soft reading is reflective of the toll that the most recent national lockdown has taken on manufacturing, especially with restrictions in Auckland higher than elsewhere.

The soft PMI reading put a damper on the GDP report for Q2, which posted a 2.8% gain, well above the consensus of 1.1%. On an annual basis, GDP soared by 17.4% – of course, this is in comparison with the Q2 of 2020, when the New Zealand economy was hard hit by Covid health restrictions. BNZ Senior Economist Doug Steel warned that GDP and manufacturing output are expected to decline significantly in the third quarter, and called the soft PMI “a reality check in the afterglow of yesterday’s very strong Q2 GDP outcome.”

The financial markets will be looking for guidance as to what the Reserve Bank of New Zealand makes of the latest data. The central bank has delayed plans to raise interest rates, but policymakers appear committed to a hike once economic conditions are more favourable. If the RBNZ raises rates, it will become the first major central bank to do so in the Covid-19 era, and a signal that a rate hike is soon on the way would likely provide a strong lift for the New Zealand dollar.

The unexpectedly strong US retail sales release is also weighing on the New Zealand dollar. The August gain of 0.70% beat the consensus of -0.70%. Although not a huge gain by any means, the reading has ignited expectations of a Fed taper, perhaps at the November policy meeting. With the FOMC holding a meeting next week, the markets will be looking for clues as to whether the Fed is ready to hit the taper buzzer at the November meeting.

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NZD/USD Technical

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Kenny Fisher

Kenny Fisher [5]

Market Analyst at OANDA [6]
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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