NZD/USD sticks to gains above mid-0.5900s, over one-week top despite weaker Chinese PMI

NZD/USD struggles to capitalize on its modest intraday uptick to over a one-week peak.
China's Caixin Manufacturing PMI unexpectedly contracted in July and acts as a headwind.
The post-FOMC USD selling and the risk-on mood continue to lend support to the Kiwi.

Haresh Menghani FXStreet

The NZD/USD pair reverses an intraday dip that followed the disappointing release of the Chinese PMI and touches a one-and-half-week high during the Asian session on Thursday. Spot prices currently trade above mid-0.5900s and seem poised to build on this week's goodish rebound from the lowest level since April 19.

A private survey showed that business activity in China's manufacturing sector unexpectedly shrank for the first time in nine months in July and pointed to underlying trouble in the world's second-largest economy. In fact, China's Caixin Manufacturing PMI fell from 51.8 in June to 49.8 last month, missing consensus estimates for a reading of 51.5 and undermining demand for antipodean currencies, including the Kiwi.

The New Zealand Dollar (NZD) is further undermined by bets for an early interest rate cut by the Reserve Bank of New Zealand (RBNZ), especially after data showed that the domestic annual CPI rate fell to its lowest rate in three years in the June quarter. The US Dollar (USD), on the other hand, languishes near a two-week low touched after the Federal Reserve (Fed) opened the door to reduce borrowing costs as soon as September.

The US central bank acknowledged the recent progress on inflation and cooling in the labor market. Adding to this, Fed Chair Jerome Powell, speaking at the post-meeting press conference, signaled the likelihood of an early rate cut if inflation stays in line with expectations. This drags the US Treasury bond yields to a multi-month low, which continues to weigh on the USD and should act as a tailwind for the NZD/USD pair.

Apart from this, a generally positive tone across the global equity markets could further undermine the safe-haven buck and lend some support to the risk-sensitive Kiwi. Moving ahead, there isn't any relevant market-moving economic data due for release from the US on Thursday, leaving the NZD/USD pair at the mercy of the USD price dynamics. The focus, meanwhile, will remain on the US Nonfarm Payrolls (NFP) report on Friday.

Economic Indicator

Caixin Manufacturing PMI

The Caixin Manufacturing Purchasing Managers Index (PMI), released on a monthly basis by Caixin Insight Group and S&P Global, is a leading indicator gauging business activity in China’s manufacturing sector. The data is derived from surveys of senior executives at both private-sector and state-owned companies. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation.The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the manufacturing economy is generally expanding, a bullish sign for the Renminbi (CNY). Meanwhile, a reading below 50 signals that activity among goods producers is generally declining, which is seen as bearish for CNY.

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