NZD/USD edges higher ahead of manufacturing PMI

• China inflation misses estimate
• NZ manufacturing PMI expected to decline

The New Zealand dollar is in positive territory on Thursday. In the European session, NZD/USD is trading at 0.5926, up 0.26%.

NZ Manufacturing PMI expected to decelerate slightly

New Zealand’s manufacturing sector has been in decline for seven consecutive months and little change is expected from the October PMI, which will be released on Friday. The market consensus stands at 45.0, compared to 45.3 in September, which marked a 2-year low. Business activity in the manufacturing sector has been dampened by weak global demand and elevated borrowing costs have exacerbated the prolonged slump.

China has been struggling with a significant slowdown, which is bad news for the New Zealand economy, as China is New Zealand’s number one trading partner. China is grappling with deflationary pressures, and the October inflation report was softer than expected due to a sharp decline in the price of pork.

Inflation in China fell by 0.2% y/y in October, down from 0.0% in September and lower than the market consensus of -0.1%. Monthly, CPI declined by 0.2%, versus a 0.2% rise in September and below the market consensus of 0.0%. If deflation continues, it could cause a downturn in inflation expectations that could dampen consumer spending.

Federal Reserve Chair Jerome Powell didn’t discuss monetary policy in public remarks on Wednesday, and the markets will again be listening carefully as Powell speaks later today. Earlier this week, two Fed members sounded hawkish about inflation.

On Wednesday, Philadelphia Fed President Harker said he expected rates to stay higher for longer and there were no signs of rate cuts in the near term. This followed Dallas Fed President Logan, who said that inflation remains too high and looks to be trending towards 3% rather than the Fed’s 2% inflation target. Logan warned that the Fed would have to maintain tight financial conditions in order to bring inflation back to target.

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NZD/USD Technical

• NZD/USD continues to test support at 0.5929. The next support line is 0.5858
• There is resistance at 0.5996 and 0.6069

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