New Zealand Dollar jumps as services PMI accelerates

The New Zealand dollar has started the new trading week with strong gains. NZD/USD is up 0.55% today, trading at 0.6191 in the European session at the time of writing.

NZ services PMI improves

New Zealand’s services sector hasn’t shown growth in sixth months but there was a bit of positive news today as the services PMI improved to 45.5 in August, up from an upwardly revised 45.2 in July. This was its highest level since April. On Friday, New Zealand’s manufacturing PMI also improved, rising in August from an upwardly revised 44.4 to 45.8, although shy of the forecast of 47.0.

Although services and manufacturing remain firmly in contraction territory (the 50 level separates contraction from expansion), the acceleration in August and the upward revisions a month earlier point to some positive momentum.

The Reserve Bank of New Zealand joined the rate-cutting club last month, lowering rates by 25 basis points to 5.25%. The economy has been struggling and with inflation down to 3.3%, the central bank has started a rate-cut cycle as it tries to boost weak economic activity.

The RBNZ meets next on October 9 and the sole tier-1 event until then is second-quarter GDP, which will be released on Thursday. The markets are braced for grim numbers as the economy is expected to have contracted in the second quarter (-0.4% q/q and 0.5% y/y) after posting small gains in the first quarter. If GDP contracts in Q2, there will be further pressure on the RBNZ to lower rates at the next meeting.

NZD/USD technical

• NZD/USD is putting pressure on resistance at 0.6199. Above, there is resistance at 0.6240.

• 0.6153 and 0.6112 are providing support.