At the start of the American trading hours on Friday, the NZD/USD has risen to trade near 0.5894, breaking a two-day losing trend. The pair remains within this week’s range, supported by positive domestic data and increasing inflation expectations. The 50-day Exponential Moving Average (EMA) at the psychological level of 0.5850 acts as a strong technical support.
New Zealand’s Business NZ Purchasing Managers’ Index (PMI) for April has increased to 53.9 from 53.2, indicating growth in the manufacturing sector and showing signs of resilience in the local economy. In addition, the Reserve Bank of New Zealand’s (RBNZ) quarterly survey has revealed that businesses now expect inflation to average at 2.29% over the next two years, up from 2.06% in the previous quarter.
Although the RBNZ is expected to lower interest rates by 25 basis points later this month, the rise in inflation expectations may cause policymakers to proceed with caution in the future. Senior economist at ASB Bank, Mark Smith, states that the central bank will be mindful of the increase in inflation expectations, especially with ongoing concerns about tariffs potentially contributing to rising price pressures. He notes that they still anticipate a 25 basis point cut and an endpoint of 2.75% by mid-2025, but this is subject to the expected short-term rise in inflation being temporary.
On the US side, the US Dollar Index (DXY) has recovered from earlier losses and remains steady around 100.30 on Friday. The US dollar has benefited from improved sentiments regarding tensions between the US and China, as well as expectations of potential rate cuts by the Federal Reserve (Fed) in the near future.
Most of this week’s economic data from the US has been disappointing, with Housing Starts, Building Permits, CPI and PPI all falling below expectations. Retail sales were also weaker than anticipated, signaling a slowdown in momentum and strengthening predictions for two Fed rate cuts this year. However, a surprising increase in export and import prices has added some uncertainty to the outlook.
The preliminary University of Michigan Consumer Sentiment report for May has shown a significant decrease to 50.8 from 52.2 in April, well below the expected 53.4. This sharp decline reflects increasing concerns among US households and further supports the case for Fed policy easing in the upcoming months.
Looking forward, all eyes will be on the series of important economic data releases from New Zealand next week, beginning with the Producer Price Index (PPI) on Monday.