New Zealand Dollar Rebounds after Sharp Losses

• New Zealand dollar rebounds after sharp losses on Friday
• New Zealand Services Index contracts
• US consumer confidence slips, inflation expectations rise

The New Zealand dollar has started the week with strong gains. NZD/USD is trading at 0.6218, up 0.46% on the day. This follows a huge decline of 1.7% on Friday, its worst one-day showing since February.

New Zealand services PMI contracts

New Zealand’s services sector has enjoyed prolonged growth, with the Services index posting 13 straight readings above 50.0, which indicates expansion. The streak ended today, as the Services index dropped from a downwardly revised 54.8 to 49.8 points. With manufacturing struggling, the services sector has been a key driver of economic growth.

The weak Services PMI follows a soft Inflation Expectations release on Friday, which eased in Q1 to 2.79%, down from 3.30% in Q4 of 2022. This marked a second straight deceleration and the first time inflation expectations have fallen below 3% in six months. These are further indications that the New Zealand economy is showing signs of slowing, which could result in the Reserve Bank of New Zealand easing on the pace of rate hikes. The central bank delivered an oversize 50-basis points hike at its April meeting but could trim that to a 25-bp increase at the May 24^th meeting.

The US wrapped the week with weak data. UoM Consumer Sentiment slipped to 57.7 in May, down from 63.5 and below the market consensus of 6.30 points. Consumers also see prices rising at 3.2% over the next 5-10 years, which marked a 12-year high. The data points to a sour consumer, who is losing confidence in the economy and is worried about inflation. There are no signs of recession, but a weakening in consumer confidence is an alarm bell about the health of the US economy.

On the economic calendar, the US releases the NY Empire State Manufacturing Index, which the market bracing for a -2.5 reading in May after rising 10.8 points in April.

NZD/USD Technical

• There is resistance at 0.6252 and 0.6332
• 0.6120 and 0.6049 are providing support