NZD/USD remains above 0.6300 ahead of the release of China’s Caixin PMI data

Highlights:

• NZD/USD is trading lower at 0.6313 following the release of disappointing Chinese economic data.
• The NBS Manufacturing PMI for December came in at 49.0, down from 49.4 in the previous month and below market expectations.It is anticipated that the Fed will initiate its easing cycle with a quarter-point drop in March.
• Investors are eagerly awaiting the release of December’s Caixin Manufacturing PMI and US S&P Global Manufacturing PMI, both of which are due on Tuesday.

On Sunday, China’s National Bureau of Statistics (NBS) released data showing that the nation’s Manufacturing Purchasing Managers’ Index (PMI) fell to 49.0 in December from 49.4 in the previous month, which was below the market estimate of 49.5 in November. Additionally, the Non-Manufacturing PMI came in at 50.4 in December, up from 50.2 in November but below the expected 50.5.

During Asian trading hours on Tuesday, the NZD/USD pair has edged lower by 0.13% to trade at 0.6313 due to weaker-than-expected Chinese economic data exerting selling pressure on the New Zealand Dollar (NZD).

The possibility of deflation in China has risen, and it will require significant fiscal and monetary stimulus in 2024. The adverse economic conditions in China could impede the New Zealand Dollar (NZD), which is closely linked to China, and pose a challenge for the NZD/USD pair.

However, the downside of the pair may be limited by the expectation that the US Federal Reserve (Fed) will reduce interest rates in 2024. The markets anticipate that the Fed will initiate its easing cycle with a quarter-point reduction in March, followed by similar cuts in May and June to keep pace with cooling inflation.

Moving forward, traders will focus on China’s Caixin Manufacturing PMI for December and the US S&P Global Manufacturing PMI on Tuesday. On Wednesday, attention will shift to the minutes of the Federal Open Market Committee (FOMC). The highly anticipated US Nonfarm Payrolls (NFP) report will be released on Friday. The direction of the NZD/USD pair could remain clear.