NZD/USD Extends Gains

12/08/2022

1 minute read

2022.12.08 18:37

The New Zealand dollar is slightly higher on Thursday. In the North American session, 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 22nd, 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 14th 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.