By Dan Bell
The NZD/USD traded to a low of 0.8729 overnight after trading as high as 0.8840 yesterday afternoon and opens this morning in the middle of this range as the market digests the US debt deal and weaker economic data from around the world.
The US Senate is expected to pass the $2.1 trillion deficit-cutting plan later today. The cuts proposed over the next ten years fall short of the $4 trillion set by some credit ratings agencies as the threshold needed to avert a U.S. ratings downgrade.
The U.S. Institute for Supply Management manufacturing report, an important measure of factory activity in the US, fell to 50.9 in July, its lowest since July 2009.The Global Manufacturing Purchasing Managers Index, produced by JPMorgan, slumped to 50.6 in July from June's 52.3, its lowest level since July 2009. In Europe, the euro zone manufacturing PMI, which gauges thousands of businesses, fell to 50.4 in July from 52.0 in June -- it’s worst showing since September 2009.
Perhaps more worrying, China's official government PMI dropped to 50.7 from 50.9 in June, its weakest in more than two years, while the HSBC PMI fell below the 50 mark for the first time in a year -- to 49.3 in July from 51.6.
China has been seen by many as the main engine of global economic growth over the last few years so signs of a slowdown there would worsen the global outlook at a time when both the U.S. and European economies are struggling with debt crises.
Could a slowing global economy be the turning point for the recent surge in the NZD and AUD against the USD- particularly if commodity prices continue to weaken!?
The NZD opens around 0.7980 AUD, 0.6130 EUR, 0.5370 GBP and 67.50 JPY.
Today we get NZ Labour Cost Index at 10:45am and from Australia the RBA announce interest rates at 4:30pm NZT. While no change is expected we will be watching the statement for further clues on the next decision. Fonterra milk auction results tomorrow morning will also be of interest.
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Dan Bell is the senior currency strategist at HiFX in Auckland. You can contact him here
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