Top Story

NZD Plummets With Recessionary Signs From PMI

A worrying data set from PMI and risk aversion for FX markets sees NZD/JPY on the cusp of breaking to new lows.

Manufacturing PMI expanded at its slowest rate since December 2012. At a mere 50.2, it is close to contraction and, whilst we could hope this is just a blip, its 12-month average points markedly lower to suggest their business cycle has most likely peaked.  


There are also some worrying signs of weakness within the sub-indices:

  • New orders are expanding at their lowest rate since December 2017 and close to contraction
  • Employment has contracted, and at its fastest rate since September 2016
  • Production contracted for the first time since May 2015, and at its fastest in 7 years
  • All trends are pointing lower to suggest NZ could be headed for a recession

However, these are leading indicators and will take time to filter through to the economy (and eventually weigh on growth). Yet as markets are forward looking, they’re acting now and pushing NZD markedly lower. Furthermore, any weakness in NZ (and visa versa) tends to have an impact their neighbours Australia, which has seen their US-10 year crash to a new historical low of just 1.37%.


There’s a slight risk-off vibe on FX markets surrounding Middle East tensions (even if stocks are shrugging them off, for now) which is weighing on NZD/JPY and AUD/JPY. That NZ saw such shocking PMI today makes NZD the weakest major by an easy margin.

  • We can see on the daily chart that the trend structure is firmly bearish. A bearish engulfing candle marked a prominent swing high at a resistance zone and, at the time of writing, NZD/JPY is on the cusp of testing its cycle low. Moreover, bearish momentum suggests a downside break could be imminent.
  • Whilst support could give way at any moment, we consider fading into minor rallies below the 38.2% retracement level and targeting the 2019 lows. Even if sentiment surrounding Iran were to reverse, it doesn’t remove issue of weak domestic data and likely calls for RBNZ to cut and follow a dovish RBA in lockstep.

Related Analysis:
NZD/CAD Could Be Gearing Up For A 300 Pip-Slide
AU Unemployment Miss Drives The Aussie Lower | AUD/USD, AUD/JPY




Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.