NZD/USD extends gains ahead of Mfg. Sales

The New Zealand dollar is slightly higher on Thursday. In the North American session, NZD/USD is trading at 0.6376, up 0.34%.

New Zealand manufacturing in trouble

New Zealand’s manufacturing sector is showing signs of strain, as high costs and hiring challenges in a tight labour market remain key problems. Manufacturing PMI contracted in October, for the first time since August 2021, dropping from 51.7 to 49.3. We’ll get a look at the November report next week. Manufacturing Sales slipped 4.9% in Q2, and third-quarter data will be released on Friday. Another decline is expected, with a consensus of -2.4%.

The Reserve Bank of New Zealand remains in hawkish mode and hiked by 75 bp at its last meeting, bringing the cash rate to 4.25%. The RBNZ considered a full-point increase, which is indicative of how seriously policy makers view the threat of high inflation, which has hit 7.2%.

The RBNZ now has a long break until the next meeting on February 22^nd, which will give it plenty of time to gauge the effect of its steep tightening on the domestic economy. The Federal Reserve will hold two more meetings before then – one on December 14^th and one on February 10th. The markets have priced in a 50-bp increase at next week’s meeting, which takes place just a day after the November inflation report. With the Fed’s focus on inflation, recent CPI reports have been major market movers for the US dollar, and I expect the same from next week’s report. Investors will also be keeping a close eye on Friday’s inflation data out of the US – the Producers Price Index and UoM inflation expectations.

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NZD/USD Technical

• NZD/USD faces resistance at 0.6497 and 0.6585
• There is support at 0.6327 and 0.6239

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