NZ Dollar Dips After Soft Services PMI

The New Zealand dollar has started the trading week in negative territory. NZD/USD is trading at 0.6097 in the European session, down 0.35% on the day at the time of writing.

New Zealand Services PMI slips

The week started on a sour note in New Zealand as the Services PMI eased to 40.2 in June, down from 42.6 in May, missing expectations and decelerating for a fourth straight month. The sub-categories of employment and new orders posted multi-year lows.

The reading was the weakest reading since May 2020 when New Zealand was grappling with the Covid pandemic. The soft reading follows last week’s Manufacturing PMI, which also decelerated, falling in June from 47.2 to 41.1. The PMI reports present an unflattering picture of the New Zealand economy, with services and manufacturing deep in contraction mode.

The Reserve Bank of New Zealand caught the markets off guard at last week’s meeting with dovish commentary that wasn’t anticipated. The central bank maintained rates at 5.5% for an eighth straight time but opened the door to rate cuts if inflation slowed as expected. This was a dramatic shift from the May meeting, when the RBNZ discussed the possibility of a rate hike.

New Zealand is heavily dependent on trade with China and the prolonged economic slowdown in China could put a dint in New Zealand’s export sector. China’s GDP fell to 4.7% y/y in the second quarter, down from 5.3% and shy of the market estimate of 5.1%. China’s retail sales and industrial production also declined in June, pointing to weaker economic growth in the world’s second-largest economy.
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NZD/USD Technical

• NZD/USD is testing support at 0.6107, followed by support at 0.6088
• 0.6138 and 0.6157 are the next resistance lines