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NZ Dollar Soft as Manufacturing PMI Drops

August 16, 2019 at 11:52 by Vladimir Vyun

Mixed dollar billsThe New Zealand dollar was somewhat soft today after the nation’s manufacturing sector demonstrated contraction last month. The currency has trimmed losses against some of its rivals, though, and stood its ground versus safer currencies as the risk sentiment stabilized.

The BusinessNZ Performance of Manufacturing Index fell to 48.2 in July from 51.1 in June. It was the lowest reading since August 2012. Furthermore, slipping below the neutral 50.0 level, the index showed that the sector fell into contraction for the first time since 2012. BNZ Senior Economist Craig Ebert commented on the result:

While July’s result is no dead-set that the economy at large is contracting, the shrinkage is certainly something to take note of.

Adrian Orr, Governor of the Reserve Bank of New Zealand, made a response today to the opinion piece from BusinessNZ chief executive Kirk Hope titled “Business concerned by blurring of Government and Reserve Bank policy”. Hope criticized the RBNZ for not being transparent and blurring the line between the government’s and the central bank’s policy, arguing that the recent decision to cut interest rates by as much as 50 basis points did not correlate with inflation and employment data. In response, Orr stated:

We are operationally independent, our mandate is clear, our goals are clear, and our decision making is transparent.

The central bank’s Governor defended the decision by the following explanation:

Given the long and variable lags between setting the Official Cash Rate and the impact on inflation and employment outcomes, our decision making is deliberately forward looking. We cannot, and do not, set the OCR based on current or historical inflation and employment outcomes. We scan the horizon and chart for the journey. We look ahead — not behind.

NZD/USD declined from 0.6447 to 0.6438 as of 11:51 GMT today, touching the low of 0.6423 intraday. EUR/NZD slipped from 1.7216 to 1.7199 after rallying to 1.7276. NZD/CHF went up from 0.6291 to 0.6306.

If you have any questions, comments, or opinions regarding the New Zealand Dollar, feel free to post them using the commentary form below.

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