The New Zealand dollar was the worst performer amongst the G10 complex following an unexpected slump in Manufacturing PMI. NZD/USD fell as much as 0.63% to 0.6528 after Business Manufacturing PMI came in at 50.2 versus 53 median forecast and 52.7 in the previous month. According to the latest report from BusinessNZ, the manufacturing PMI dropped 2.5 points in May, thanks to sharp contractions in Production (-3.7) and Deliveries (-3.6) sub-components. Only the Finished Stocks sub-component managed to edge higher, up 4 points to 56.5. However, the details remains worrying, as the PMI slid to the lowest since December 2012 and the trend is clearly bias to the downside. Most worryingly, the sharp drop in production to 46.4 is of bad omen for the months to come, especially since new orders printed close to the neutral threshold and inventories are building up – finished stocks came in at 56.5.
Looking at the big picture, data from New Zealand suggests a stabilisation in the first quarter but the story could be much in the second one as data from the job market, service sectors and manufacturing sectors point to slower economic expansion. The recent monetary push by RBNZ suggests that the central bank anticipates such a scenario. However, we believe that there is room for further USD debasement as market participants have been pricing more rate hikes from the Fed. Now that Powell is about to engage the reverse gear, the greenback should continue to trim gains, which should prevent the Kiwi to slide further.
By Peter Rosenstreich