The New Zealand dollar is down sharply on Friday. In the North American session, NZD/USD is trading at 0.5956, down 0.68%. The US dollar has moved higher against the majors and NZD/USD has declined about 1% this week.

NZ manufacturing PMI contracts for 13th straight month

Manufacturing has been an Achilles heel for many of the developed economies and New Zealand’s manufacturers have been hit hard. The Business NZ manufacturing PMI dropped to 47.1 in March, down from 49.3 in February. This was the lowest point this year and marked a 13th consecutive month of contraction, the longest downturn since 2009.

The prolonged slump in manufacturing shows no signs of turning the corner anytime soon. China’s slowdown has been a key factor in the downturn, as it is New Zealand’s number one export market. China is grappling with inflation and this week Fitch ratings lowered its credit outlook on China to negative, although the country’s credit rating was not affected.

New Zealand’s economy slipped into a shallow recession in the second half of 2023 but the markets remain confident that the Reserve Bank of New Zealand will lower rates this year. Investors have priced in an initial rate cut in August, while the RBNZ has projected a first rate cut in 2025. The RBNZ held rates for a sixth straight time this week and is reluctant to consider a rate cut until it is confident that inflation will remain sustainable within its 1-3% target.

The US economy continues to shine and the March nonfarm payrolls and CPI releases were stronger than expected. The Fed is concerned as inflation, which has climbed to 3.5%, has accelerated for two straight months. The hot inflation report prompted hawkish reactions this week from New York Fed President Williams and Boston Fed President Collins, who said the was no need to lower lower rates until it was evident that inflation was moving back to the 2% target. The markets have pared expectations for rate cuts as the Fed will likely delay plans to trim rates due to the strong labor market and rise in inflation.

NZD/USD Technical

• NZD/USD is putting pressure on support at 0.5953, which has held since April 3. The next support level is 0.5853
• There is resistance at 0.6000 and 0.6060

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