AUD/NZD falls to near 1.1500 as Business NZ PMI rises in October

• AUD/NZD loses ground as the Business NZ PMI rose to 51.4 in October, from 50.1 prior.
• BNZ’s Doug Steel said modest improvement was encouraging, giving the PMI its first four-month streak above 50 in three years.
• The Australian Dollar also receives support as improved labor market data boosts the RBA caution.

AUD/NZD depreciates by nearly 0.5%, trading around 1.1500 during the Asian hours on Friday. The currency cross lost ground as the New Zealand Dollar (NZD) is supported by upbeat domestic manufacturing data, with the Business NZ Performance of Manufacturing Index (PMI) rising to 51.4 in October, up from September’s 50.1.

BNZ senior economist Doug Steel noted that the improvement was modest but encouraging, marking the PMI’s first four-month run above the 50 breakeven level in three years. Meanwhile, BusinessNZ’s director of advocacy, Catherine Beard, said that after two months of flat activity in the sector, October finally showed clearer signs of improvement.

The NZD outperforms the Australian Dollar (AUD) after China’s October Industrial Production and Retail Sales data. Economic releases from China often influence both currencies, given China’s key role as a major trading partner for New Zealand and Australia.

The National Bureau of Statistics (NBS) showed Friday that China’s Retail Sales climbed 2.9% year-over-year (YoY) in October, against the 3.0% in September but exceeding the 2.7% expected. Meanwhile, Industrial Production increased 4.9% YoY in the same period, compared to the 5.5% forecast and 6.5% seen previously. The Fixed Asset Investment came in at -1.7% year-to-date (YTD) YoY in October, missing the expected -0.8% figure. The September reading was -0.5%.

The downside of the AUD/NZD cross could be restrained as the AUD gains support, driven by Australia’s improved employment data reinforced the cautious sentiment surrounding the Reserve Bank of Australia (RBA) policy outlook.

RBA Deputy Governor Andrew Hauser said on Wednesday, “Our best estimate is that monetary policy remains restrictive, though the committee continues to debate this.” Hauser added that if the policy is no longer mildly restrictive, it would have significant implications for future decisions.