This week’s economic data spotlight was all over the NZD, and it’s been a wild ride. From central bank decisions to consumer confidence, the NZD-USD pair had its hands full. Let’s break down the chaos.
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RBNZ’s Mixed Messages on Rates and Inflation
The Reserve Bank of New Zealand (RBNZ) has been sending mixed messages about rates and inflation. Governor Adrian Orr says the biggest risk is not getting inflation low and stable. Yet, despite leaving the cash rate at 5.5%, he hinted that the bank might start easing up on monetary policy before inflation hits the magic 2% mark. Talk about keeping traders on their toes.
Deputy Governor Hawkesby chimed in, saying cutting rates isn’t on the table anytime soon. Meanwhile, Assistant Governor Silk is worried about near-term inflation risks. The RBNZ’s message is as clear as mud, but it’s keeping the NZD-USD pair interesting.
Economic Data Has Been Interesting
New Zealand’s economic data has been interesting, too. April’s annual trade balance improved to NZD1.011 billion from NZD998 million, a sign exports are on the up. However, Q1 retail sales edged up by just 0.5% quarter-on-quarter, slightly beating the 0.3% expectation. Consumer spending is steady, but it’s not setting the world on fire.
Consumer confidence saw a slight boost, with the ANZ-Roy Morgan index ticking up to 84.9 in May from 82.1 in April. It’s not a party, but it’s better than nothing.
On the flip side, Finance Minister Willis warned that the government deficit is expected to balloon even more in 2025 than in 2024. Bigger deficits could spook investors and impact economic policy, adding another layer of complexity to the NZD-USD saga.
Not to be outdone, Australian economic data has its part to play in the NZD-USD drama. The May preliminary manufacturing PMI stayed flat at 49.6, signaling a sluggish sector. Meanwhile, consumer inflation expectations for May dropped to 4.1% from 4.6%, hinting at potential relief from rising prices.
Market Reactions and What’s Next
After moving up for four straight weeks and gaining a little over 250 pips, this week has halted the NZD-USD from moving up for a fifth straight week. Unless something dramatic happens between now and the Friday close, NZD-USD will close this week lower by -064%, or 40-ish pips.
