The New Zealand dollar wrapped up a fourth consecutive winning week and is in positive territory on Monday. NZD/USD is trading at 0.6076, up 0.37% in the European session at the time of writing.
New Zealand PSI pace of contraction eases
The New Zealand Performance of Services Index rose to 44.6 in July, up sharply from 40.7 in June. The index remained in contraction mode (below 50) for a fifth straight month and all industries reported contraction, which is a sign of concern. The services sector makes up about two-thirds of New Zealand’s GDP and the continuing contraction points to a weak economy.
The Reserve Bank of New Zealand delivered an initial rate cut last week and forecast that GDP will decline 0.5% in the second quarter and 0.2% in Q4.This would mark a technical recession, with two consecutive quarters of negative growth.
In the US, last week’s data was solid, as retail sales jumped 1% and inflation ticked lower 2.9%, down from 3%. On Friday, UoM consumer sentiment rose in July and beat expectation, while inflation expectations were unchanged at 2.9%, in line with expectations. The markets melted down after a weak US employment report earlier this month but strong US numbers last week led to improved risk appetite which has hurt the US dollar.
The markets expect a rate cut at the Federal Reserve’s next meeting on September 18, with a quarter-point cut being the most likely decision. On Friday, Minneapolis Fed President Neel Kashkari said that a rate cut discussion at the September meeting was “appropriate” as inflation had eased, but expressed concern about the deteriorating labor market.
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NZD/USD Technical
- NZD/USD tested resistance earlier at 0.6080. Next, there is resistance at 0.6107
- 0.6030 and 0.6003 are providing support
