NZD/USD drops toward 0.6300 ahead of US manufacturing data

NZD/USD loses ground following the remarks from Fed’s Powell saying lowering interest rate ‘over time.’
US ISM Manufacturing PMI is expected to improve to 47.5 in September, from the previous 47.2 reading.
New Zealand’s Building Permits declined 5.3% MoM in August, swinging from a significant 26.4% increase in the prior month.

Akhtar Faruqui FXStreet

NZD/USD trades around 0.6310 during the European hours on Tuesday, breaking its three-day winning streak. On Monday, Federal Reserve (Fed) Chairman Jerome Powell said the central bank is not in a hurry and will lower its benchmark rate ‘over time,’ which has supported the US Dollar (USD) and undermined the NZD/USD pair.

However, the subdued US Treasury yields may limit the upside of the US Dollar. The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against other six major currencies, extends its gains for the second successive day. The DXY trades around 101.00 with 2-year and 10-year yields on US Treasury bonds standing at 3.62% and 3.76%, respectively, at the time of writing.

Traders await US manufacturing data including ISM Manufacturing PMI later in the North American session, which is expected to improve to 47.5 in September, from the previous 47.2 reading. This report may provide a reliable outlook on the state of the US manufacturing sector.

Seasonally adjusted Building Permits in New Zealand showed a 5.3% month-on-month decline in August, following a significant 26.4% increase in the prior month. This reflects a slowdown in the issuance of consents for new dwellings. Additionally, the NZIER Business Confidence index dropped by 1% quarter-on-quarter in the third quarter, showing an improvement compared to the 44% decline observed in the previous quarter, though overall sentiment remains cautious.

The Reserve Bank of New Zealand (RBNZ) responded to slowing economic growth by beginning to ease its policy in August, a trend that may extend into the fourth quarter. The main uncertainty lies in the speed of rate cuts, with most economists predicting a 25 basis point reduction at each of the two remaining meetings this year, aligning with Governor Adrian Orr's commitment to a gradual approach.

The New Zealand (NZ) Treasury’s economic assessment, released on Tuesday, indicated that they “don't expect activity to have picked up much in the latest quarter.” While GDP for the June quarter declined by 0.2%, the drop was smaller than anticipated, with population growth concealing underlying economic weakness. As a substantial amount of data is set to be released in the next two weeks, we should soon have a clearer understanding of where the economy stands in the current cycle.

Economic Indicator

ISM Manufacturing PMI

The Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging business activity in the US manufacturing sector. The indicator is obtained from a survey of manufacturing supply executives based on information they have collected within their respective organizations. Survey responses reflect the change, if any, in the current month compared to the previous month. A reading above 50 indicates that the manufacturing economy is generally expanding, a bullish sign for the US Dollar (USD). A reading below 50 signals that factory activity is generally declining, which is seen as bearish for USD.

Why it matters to traders?

The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers Index (PMI) provides a reliable outlook on the state of the US manufacturing sector. A reading above 50 suggests that the business activity expanded during the survey period and vice versa. PMIs are considered to be leading indicators and could signal a shift in the economic cycle. Stronger-than-expected prints usually have a positive impact on the USD. In addition to the headline PMI, the Employment Index and the Prices Paid Index numbers are watched closely as they shine a light on the labour market and inflation.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

EUR/USD accelerates losses, focus is on 1.1800

EUR/USD’s selling pressure is gathering pace now, opening the door to a potential test of the key 1.1800 region sooner rather than later. The pair’s pullback comes on the back of marked gains in the US Dollar following US data releases and the publication of the FOMC Minutes later in the day.

GBP/USD turns negative near 1.3540

GBP/USD reverses its initial upside momentum and is now adding to previous declines, revisiting at the same time the 1.3540 region on Wednesday. Cable’s downtick comes on the back of decent gains in the Greenback and easing UK inflation figures, which seem to have reinforced the case for a BoE rate cut in March.

Gold battle to regain $5,000 continues

Gold is back on the front foot on Wednesday, shaking off part of the early week softness and challenging two-day highs just above the key $5,000 mark per troy ounce. The move comes ahead of the FOMC Minutes and is unfolding despite an intense rebound in the US Dollar.

Fed Minutes to shed light on January hold decision amid hawkish rate outlook

The Minutes of the Fed’s January 27-28 monetary policy meeting will be published today. Details of discussions on the decision to leave the policy rate unchanged will be scrutinized by investors.

Mixed UK inflation data no gamechanger for the Bank of England

Food inflation plunged in January, but service sector price pressure is proving stickier. We continue to expect Bank of England rate cuts in March and June. The latest UK inflation read is a mixed bag for the Bank of England, but we doubt it drastically changes the odds of a March rate cut.

Sui extends sideways action ahead of Grayscale’s GSUI ETF launch

Sui is extending its downtrend for the second consecutive day, trading at 0.95 at the time of writing on Wednesday. The Layer-1 token is down over 16% in February and approximately 34% from the start of the year, aligning with the overall bearish sentiment across the crypto market.