The New Zealand dollar climbed 1% on Monday, supported by strong economic data from China. However, New Zealand’s service sector PMI experienced contraction. Despite these challenges, the manufacturing sector showed improvement. The Reserve Bank of New Zealand cut interest rates again, anticipating economic recovery.

The New Zealand dollar has experienced a notable increase on Monday, with NZD/USD trading at 0.5801, reflecting a 1.0% rise during the North American session. Earlier in the day, the currency reached 0.5805, marking its highest value since December 12.

The notable gains in the New Zealand dollar can be attributed to robust data emanating from China. Specifically, China’s industrial production rose by 5.9% year-on-year for January-February, slightly below December’s 6.2% increase but exceeding the market expectation of 5.3%. In addition, retail sales rose by 4% during the same period, following a 3.7% increase in December and aligning with market forecasts. This positive economic outlook from China is significant for New Zealand, which heavily relies on China as its primary trading parceiro.

Conversely, New Zealand’s service sector has faced challenges, as indicated by a decline in the Services PMI to 49.1 in February from a previous 50.4 in January. This marks a period of contraction, having recorded ten consecutive readings below the pivotal 50 mark, a threshold separating expansion from contraction. Pessimism regarding economic conditions is prevalent among surveyed service managers, while new orders and employment figures have also contracted.

Interestingly, the manufacturing sector has shown resilience, with the Manufacturing PMI rising to 53.9 in February from 51.4 the prior month, indicating a recovery after nearly two years of decline. Overall, New Zealand’s economy has been underperforming, recording two consecutive quarters of negative growth, thus officially entering a recession, with contractions of 1.1% and 1.0% respectively in Q2 and Q3 2024.

In response to economic conditions, the Reserve Bank of New Zealand has proactively reduced interest rates, having implemented a 50 basis point cut in February, lowering the cash rate to 3.75%. This constitutes the third consecutive reduction of 50 bps. As market expectations project a rebound, the next policy meeting is scheduled for April 9, during which a further 25-bps cut has been contemplated. No major economic reports for New Zealand are anticipated prior to this meeting.

It is essential to note that this content is provided for informational purposes only and should not be construed as investment advice or an invitation to engage in securities transactions.

In summary, the New Zealand dollar has strengthened due to encouraging economic data from China, while the domestic service sector has entered contraction. Despite recent economic struggles, the manufacturing sector has shown signs of growth. The Reserve Bank of New Zealand’s proactive stance in cutting interest rates aims at stimulating economic recovery, as the country navigates through challenging conditions marked by a technical recession.

Original Source: www.marketpulse.com

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