NZD/USD languishes near one-week low, around 0.5735 after China’s PMI data

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The NZD/USD pair trades with a negative bias for the third straight day on Friday and remains close to a one-week low, around the 0.5725 region, touched the previous day.

NZD/USD remains depressed for the third consecutive day amid a combination of negative factors.
The Fed’s hawkish tilt continues to underpin the USD and weighs on the pair amid a softer risk tone.
The US-China trade optimism and mixed Chinese PMIs do little to impress bulls amid a dovish RBNZ.

The NZD/USD pair trades with a negative bias for the third straight day on Friday and remains close to a one-week low, around the 0.5725 region, touched the previous day. Spot prices move little following the release of rather unimpressive China's official PMIs and seem poised to register weekly losses amid the short-term bullish sentiment surrounding the US Dollar (USD).

The US Federal Reserve (Fed) lowered its benchmark overnight borrowing rate to a range of 3.75%-4% at the end of a two-day meeting on Wednesday and said it would stop reducing the size of its balance sheet as soon as December. This marks the end of the central bank's quantitative tightening program. However, the hawkish tilt came from Fed Chair Jerome Powell's comments at the post-meeting press conference, which prompted some meaningful USD buying and led to the NZD/USD pair's downfall witnessed over the past two days.

Fed Chair pushed back against market expectations for a further reduction in the policy rate at the next meeting in December. This, along with reviving safe-haven demand, assists the safe-haven Greenback to hold steady near its highest level since early August, touched on Thursday. Moreover, the Reserve Bank of New Zealand's (RBNZ) dovish outlook undermines the New Zealand Dollar (NZD) and backs the case for an extension of the NZD/USD pair's pullback from the 0.5800 mark, or an over three-week high, touched on Wednesday.

Meanwhile, China’s official Manufacturing PMI dropped to 49 in October from 49.8 recorded in the previous month and also missed expectations for a reading of 49.6. This offsets an unexpected uptick in the Non-Manufacturing PMI, which rose slightly from September’s 50 to 50.1 for the reported month. However, the data, along with the latest optimism led by a de-escalation of US-China trade tensions, fails to provide any respite to bullish traders. This, in turn, suggests that the path of least resistance for the NZD/USD pair is to the downside.

Economic Indicator

NBS Manufacturing PMI

The NBS Manufacturing Purchasing Managers Index (PMI), released by the China Federation of Logistics & Purchasing (CFLP) and China’s National Bureau of Statistics (NBS), is a leading indicator gauging business activity in China’s manufacturing sector. The data is derived from surveys of senior executives at manufacturing 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.

Why it matters to traders?

The monthly manufacturing PMI is released by China Federation of Logistics and Purchasing (CFLP) on the last day of every month. The official PMI is released before the Caixin Manufacturing PMI, which makes it even more of a leading indicator, highlighting the health of the manufacturing sector, considered as the backbone of the Chinese economy. The data is of high relevance for the financial markets throughout several asset classes, given China’s influence on the global economy.