NZD/USD slips to 0.6300 ahead of US manufacturing data

• NZD/USD loses ground following remarks from Fed Powell, who says interest rate cuts ‘over time’.
• US ISM manufacturing PMI is expected to improve to 47.5 in September from 47.2 previously.
• New Zealand building permits fell 5.3% in August, swinging from a sharp 26.4% increase the previous month.

NZD/USD is trading around 0.6310 during European hours on Tuesday, snapping a three-day winning streak. On Monday, Federal Reserve (Fed) Chairman Jerome Powell said the central bank was in no rush and would cut its benchmark rate “over time”, which supported the US dollar (USD) and undermined the NZD/USD pair.

However, low US Treasury yields may limit the US dollar’s upside. The US dollar index (DXY), which measures the value of the US dollar (USD) against six other major currencies, extended its gains for a second straight day. DXY is trading around 101.00, with 2-year and 10-year US Treasury yields at 3.62% and 3.76%, respectively, at the time of writing.

Traders await US manufacturing data, including the ISM Manufacturing PMI later in the North American session, which is expected to improve to 47.5 in September from 47.2 previously. This report can provide reliable insight into the state of the US manufacturing sector.

New Zealand’s seasonally adjusted building permits fell 5.3% month-on-month in August, after a sharp 26.4% increase the previous month. This reflects a slowdown in new housing permits. Additionally, the NZIER Business Confidence Index fell 1% from the third quarter, showing an improvement from the 44% decline seen in the previous quarter, although overall sentiment remains cautious.

The Reserve Bank of New Zealand (RBNZ) responded to the slowdown in economic growth by starting to ease policy in August, a trend that may extend into the fourth quarter. The main uncertainty lies in the speed of interest rate cuts, with most economists predicting a 25 basis point cut at each of the two remaining meetings this year, aligning with Governor Adrian Orr’s commitment to a gradual approach.

The New Zealand (NZ) Treasury’s economic assessment released on Tuesday indicated that “activity is not expected to have grown much in the last quarter”. While GDP for the June quarter fell 0.2 percent, the decline was smaller than expected, with population growth masking underlying economic weakness. With a substantial amount of data being released over the next couple of weeks, we should soon have a clearer understanding of where the economy stands in the current cycle.