NZ dollar edges higher despite soft mfg. data

The New Zealand dollar is slightly higher on Friday. NZD/USD is trading at 0.6110 in the European session, up 0.24% on the day at the time of writing.

New Zealand dollar showing big swings

It has been a volatile few days for the New Zealand dollar. On Wednesday, NZD/USD fell as much as 1% after the Reserve Bank of New Zealand surprised the markets with an unusually dovish rate statement. The RBNZ held the cash rate at 5.5% for an eighth consecutive time but opened the door to rate cuts earlier than expected, perhaps as early as August.

At the previous meeting in May, the RBNZ projected rates would remain at 5.5% until August 2025 and even discussed a rate hike. The central bank made a startling 180 degree pivot at this week’s meeting, hinting at possible rate cuts due to the slowing economy and expectations for inflationary pressures to ease. The markets jumped on the RBNZ’s dovish pivot and have priced in rate cuts in August or November. The rise in expectations of a rate cut sent the New Zealand dollar sharply lower.

The soft US inflation report on Thursday gave the New Zealand dollar a strong boost, as NZD/USD climbed as much as 0.90% before paring most of these gains. Inflation fell more than expected to 3%, supporting the case for the Federal Reserve to lower rates at the September meeting.

New Zealand’s manufacturing sector has been in a depression and the Manufacturing PMI fell deeper into contraction territory in June. The index slid to 41.1 in June, down sharply from 47.2 in May and shy of the forecast of 46.8. This was the lowest reading since August 2021 and has contracted for 15 straight months. The weak domestic economy and softer demand for New Zealand exports continues to weigh on manufacturing.
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NZD/USD Technical

• NZD/USD is testing resistance at 0.6103. Above, there is resistance at 0.6127
• 0.6071 and 0.6047 are providing support

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