New Zealand dollar drifting after soft Manufacuturing PMI, markets brace for soft US retail sales

• New Zealand Manufacturing PMI declines in March
• US retail sales expected to decline in March
• NZD/USD is trading quietly around the 0.6300 line

New Zealand manufacturing declines

New Zealand wrapped up the week on a sour note, as Manufacturing PMI for March slipped to 48.1, after a downwardly revised 51.7 in February and below the estimate of 51.0. A reading above 50.0 indicates expansion; below 50.0 indicates contraction. The manufacturing sector has been struggling across the globe due to weak economic conditions and supply chain issues, and the market reaction to the weak release was muted.

Inflation remains the Reserve Bank of New Zealand’s number one priority. The central bank has taken off the gloves and has been very aggressive, including a 50-basis point hike last week which completely blindsided the markets. The benchmark cash rate is currently at 5.25%, but inflation remains stubbornly high at 7.2%. The markets are bracing for inflation to rise to 7.5% for the first quarter, and RBNZ Governor Orr will have a lot of explaining to do if inflation accelerates despite the relentless rise in interest rates.

The US releases March retail sales later today, with the markets projecting soft numbers. Headline retail sales is expected to decline by 0.4% for a second straight month, while the core rate is forecast to fall by 0.3%, after a -0.1% read in February.

Currently, the odds of a 25-bp hike are 69%, with a 31% chance of a pause, according to the CME Group. The retail sales release could impact the movement of the US dollar. A strong release would make a rate hike more likely, which is bullish for the greenback, while a soft release would raise expectations of a Fed pause and weigh on the dollar.

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NZD/USD Technical

• NZD/USD is putting pressure on support at 0.6282. Below, there is support at 0.6192
• 0.6356 and 0.6446 are the next resistance lines

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