NZD/USD Drops 1% on Weak Chinese Manufacturing PMI and Upcoming New Zealand Employment Report

NZD/USD is down 1%
China’s Caixin Mfg. PMI contracted in July

The New Zealand dollar continues to show sharp volatility early in the week. In Tuesday’s European session, NZD/USD is trading at 0.6142, down 1.06%. The decline has wiped out the gains the New Zealand dollar made on Monday when it rose 0.85%.

China’s Caixin Mfg. PMI declines

China’s recovery has been bumpy, and this week’s PMIs didn’t bring any good news. The Caixin Manufacturing PMI for July declined for the first time in three months, falling from 50.5 to 49.2 and missing the consensus estimate of 50.3 points. On Monday, the official PMIs pointed to weak activity, with manufacturing coming in at 49.3 and non-manufacturing at 51.5 points. The 50.0 line divides expansion from contraction.

The weak Caixin Manufacturing PMI has sent the New Zealand dollar sharply lower on Tuesday. China is a key trading partner for New Zealand and the New Zealand dollar is sensitive to Chinese economic releases.

New Zealand’s labour market has been tight, which has interfered with the central bank’s efforts to bring inflation back to the 2% target. We’ll get a look at the second-quarter employment report on Wednesday, and the data may not be to the Reserve Bank’s liking. Employment Change is expected to rise by 0.5%, compared to 0.8% in Q1. The unemployment rate is projected to inch higher to 3.5% in the second quarter, up from 3.4% in the first quarter.

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There aren’t many tier-1 releases ahead of the Reserve Bank’s meeting on August 16^th, which makes Wednesday’s employment report doubly important. If, as expected, the data shows that the labour market is robust, it will support the Reserve Bank raising rates. Conversely, a weak employment report would be a reason for the central bank to take a pause from raising rates.

In the US, the manufacturing data reaffirmed weakness in the sector. The ISM Manufacturing PMI for July improved from 46.0 to 46.4 but missed the estimate of 46.8. ISM Manufacturing Employment slipped to 44.4, down from 48.1 and shy of the estimate of 48.0 points.

NZD/USD Technical

NZD/USD has pushed below support at 0.6184. Below, there is support at 0.6093
0.6246 and 0.6337 are the next resistance lines

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Kenny Fisher

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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