The New Zealand dollar is lower on Monday. In the European session, NZD/USD is trading at 0.6082, down 0.44%.
Services PMI contracts for seventh straight month
New Zealand’s economy has been struggling, and a key factor has been the contraction in the services sector. The services PMI remained steady in September at 45.7 following an upward revision in August. The PMI has now been stuck in contraction for seven straight months, with readings below the neutral 50 level.
The Reserve Bank of New Zealand chopped interest rates by 50 basis points last week, as the weak economy is in danger of tipping into a recession due to elevated rates. The RBNZ has been hawkish and even warned at recent meetings about possibly raising rates, but pivoted sharply in delivering an oversized cut.
The RBNZ had projected that it would not start lowering rates until mid-2025 but the weak economy and falling inflation were the drivers behind the rate cut. New Zealand releases third-quarter inflation on Tuesday with a market estimate of 2.3% y/y, compared to 3.3% in the second quarter.
Lower inflation is welcome news for the RBNZ, but weak inflation in China is not. In September, inflation dropped to 0.4% y/y, down from 0.6% in August and below the market estimate of 0.6%. Monthly, inflation eased to 0.0%, down from 0.4% and below the market estimate of 0.4%. Core CPI rose only 0.1%, its lowest level since February 2021.
China has a deflation problem, which could result in weaker economic growth and higher unemployment. That would dampen consumer demand and New Zealand would feel the pinch, as China is New Zealand’s largest export market.
NZD/USD Technical
- NZD/USD has support at 0.6051 and 0.5991
- There is resistance at 0.6112 and 0.6172
