NZ dollar dips despite strong mfg. data

The New Zealand dollar’s mini-rally has come to a halt, as NZD/USD has posted slight losses. In the North American session, NZD/USD is trading at 0.6845, down 0.21% on the day.

NZ Manufacturing PMI expands

New Zealand’s manufacturing sector posted strong numbers this week. Earlier today, Manufacturing PMI accelerated to 53.6 in February, up from 52.3. A reading above the 50-level points to expansion. Importantly, this reading was slightly higher than the long-term norm of 53.1.

New Zealand’s manufacturing sector has been sensitive to the Covid pandemic. In August 2021, the PMI slipped to 40.0 as a result of harsh Covid lockdowns. The February reading showed expansion despite the spike in Covid numbers, as the Omicron variant did not trigger lockdowns. Earlier in the week, Manufacturing Sales showed an excellent rebound of 12% in Q4, after a 2.3% decline in Q3. Major economies have been dealing with supply disruptions and shortages which have hampered manufacturing activity, but New Zealand manufacturing is pointing upwards despite these issues.

The Ukraine crisis and skyrocketing oil prices have hurt risk appetite, which normally would have a negative impact on the risk-sensitive New Zealand dollar. However, the currency has done well recently and hasn’t sustained a losing week since January. This is attributable to the New Zealand dollar being a commodity-based currency, and the surge in commodities has boosted the currency. Still, the New Zealand dollar, like other risk currencies, remains vulnerable to haven flows to the US dollar, and a worsening of the war in Ukraine could see a rotation into US dollars and a decline in the New Zealand dollar.

The Federal Reserve will almost certainly raise rates next week, likely by 25 basis points. With the turbulent economic landscape due to the Ukraine crisis and the staggering rise in oil prices, Fed policy makers have to also worry about stagflation. The Fed will have to be cautious about raising rates and not choking off economic activity, which means that we could see a slower timeline for raising rates than what the markets had anticipated only a few weeks ago.

.

NZD/USD Technical

• NZD/USD has support at 0.6802 and 0.6733
• There is resistance at 0.6931 and 0.7000

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.