NZ dollar slides as risk sentiment falls

The New Zealand dollar is sharply lower on Tuesday. NZD/USD is trading at 0.6261, down 1.14% on the day.

New Zealand data has been mixed this week. BusinessNZ Services Index rose to 55.2 in May, up from 52.2 in April. This points to stronger expansion in the services area. However, Westpac Consumer Confidence plunged to 78.7 in May, its lowest level ever recorded. This was down from 92.1 in April. Consumers are very unhappy about the cost of living crisis and the survey found that consumers are scaling back on leisure activities, such as dining at restaurants. The double blow of higher mortgage rates and increases in living expenses has taken a large chunk of disposable income. If this results in a decrease in consumer spending, it could lead to a downturn in economic growth.

Consumer angst could have a major effect on the Reserve Bank’s policy. If consumer demand sinks, the central bank may have to ease off on the size of future rate hikes. The RBNZ has been tightening aggressively and the cash rate, which is currently at 2%, is expected to rise to 3% by the end of August and possibly to 4% in 12 months’ time.  The RBNZ is in a fierce battle with inflation and if demand falls, inflation could peak and allow the central bank to ease up on its tightening cycle. The Bank is also monitoring inflation expectations, with policy makers keen to ensure that expectations don’t become unanchored.

Powell in the spotlight

With no US releases today, Fed Chair Powell’s semi-annual appearance on Capitol Hill will take over center stage. Powell will brief lawmakers today and tomorrow, and anxious investors will be on the lookout for clues on where monetary policy is headed. Will Powell signal that he plans to ease on tightening? Powell’s testimony could have a strong impact on the financial markets and should be treated as a market-mover for the US dollar.

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NZD/USD Technical

• NZD/USD tested support at 0.6302 earlier. Below, there is support at 0.6209
• There is resistance at 0.6408

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