NZD consolidates above 60 US cents, meets resistance in 0.6060's. Subdued trade given US equity & bond markets closed for Thanksgiving. Eurozone and UK PMIs beat expectations suggesting mild recessions likely

By Stuart Talman, XE currency strategist

News flow has been light over the past 24 hours with US cash markets closed in observance of the Thanksgiving Day holiday. Equity and bond markets will re-open Friday but trade an abbreviated session.

The US dollar is softer across the board, modestly weakening against most major peers (flat vs CAD) as relatively tight ranges have traded. The New Zealand dollar is the top performer on the G10 leaderboard, adding close to half-a-percent, advancing from 0.6020 in the Asian morning to mark intraday highs in the 0.6060's in the London morning. Gains have been pared through overnight trade, NZDUSD easing back through 0.6040.

Having peaked through 0.6080, Tuesday, price action has been consolidating above 60 US cents over the past 48 hours, awaiting its next directional cue. A move back below 60 US cents would confirm a short-term swing high has formed, whilst an extension higher, through Tuesday's high would set-up an important test of the 200-day moving average.

Price action reclaiming territory north of the widely monitored trend following indicator would likely be a green light for NZD bulls to further lift the Kiwi higher into year-end.

In the absence of US macroeconomic data releases, S&P Global PMIs for the UK and eurozone economies presented as the headliners for Thursday.

The flash readings of manufacturing and services sector activity in the EU remain firmly in contractionary territory, but encouragingly, have ticked higher through November, manufacturing climbing from 43.1 to 43.8 (vs 43.4, expected), a 6-month high, whilst services improved from 47.8 to 48.7 (vs 48.1, expected). The data is indicative of a eurozone economy that will experience a mild recession should activity levels remain around current levels in the months ahead.

Of note, the prices paid sub-gauge within the services PMI materially increased, an undesired outcome given inflation remains well above the ECB's target.

The release of ECB meeting minutes later in the session have recorded that the eurozone central bank remains attentive to upside inflation risks, but also recognise that risks to the growth outlook clearly lean to the downside.

The Kiwi has gained around a third-of-a-percent against the euro, finding support near 0.5530 following Wednesday's orderly pullback before marking Thursday's highs in the 0.5550's.

Price action has been choppy over the past month, converging in a descending triangle pattern. A spike through the 100-day moving average and descending trendline resistance would shift the short-term bias from neutral to positive, signalling the pair can establish a higher range through December. 

The UK PMIs told a similar story, the manufacturing slowdown easing through November, the index climbing from 44.8 to 46.7 (vs 45.0, expected) whilst the services PMI climbed back into expansionary territory (50.0 or higher reading) for the first time in 4 months, climbing from 49.5 to 50.5 (vs 49.5, expected).

Over the past month the Kiwi has tracked sideways against the pound, ranging between 0.4770 and 0.4860. Advancing into the 0.4840's in the run-up to the PMIs, NZDGBP pared gains through overnight trade, falling back through 0.4820. We maintain our expectations of a 0.4750 to 0.4900 range as 2023 draws to a close.

To the day ahead, locally the release of third quarter retail sales is the main act, household spending expected to add to the weakening trend of the past few quarters.

S&P Global PMIs for the US are released but not likely to induce a meaningful reaction given they are not regarded as highly as the ISM versions, (manufacturing to drop late next week, services the week after) and a shortened US session will trade light volume. 

Expected NZDUSD range: 0.6020 to 0.6060.

Stuart Talman is Director of Sales at XE. You can contact him here.