NZD/USD slide continues as Services PMI decelerates

• New Zealand Services PMI declines in March
• US retail sales fall, inflation expectations jump
• NZD/USD falls to 3-week low

New Zealand Services PSI declines

New Zealand’s services sector saw expansion levels ease in March. The BusinessNZ PSI (Performance of Services Index) fell to 54.4, down from 55.8 in February but well above the 50.0 line which separates contraction from expansion. According to Business NZ, the drivers behind the decline were a weakening economy, price increases and an uncertain economic landscape.

This follows last week’s Manufacturing PMI, which slipped to 48.1, after a downwardly revised 51.7 in February. This trend conforms to the situation in other major economies, where the services sector has largely recovered from Covid, but manufacturing has been struggling due to weak global economic conditions and supply chain issues.

The key New Zealand release this week is first quarter CPI, which will be released on Thursday. Headline CPI is expected to ease to 6.7%, down from 7.2%. The Reserve Bank of New Zealand has been relentless in its battle to contain inflation, raising the benchmark cash rate to 5.25%. Governor Orr needs a substantial drop in the upcoming inflation report to defend high rates which have cooled the economy and hurt households and businesses.

The New Zealand dollar is down 0.58% today, after sliding 1.4% a day earlier. Although US retail sales underperformed, the UoM inflation expectations index for the next 12 months jumped to 4.6%, up from 3.6% prior. Hawkish comments from Fed members also boosted the US dollar on Friday. Fed member Waller said that inflation remained too high and the Fed would have to keep rates elevated for a longer period than the markets anticipated. Fed member Bostic called for one or two more rate hikes before the current rate-tightening cycle is completed.

Even with inflation falling and consumer spending in decline, the markets believe that the economy remains too hot and the current cycle isn’t quite over. The odds of a 25-basis point hike in May are 84% according to the CME Group, up from 72% a week ago. Higher expectations that the Fed will continue raising rates have boosted the US dollar.

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NZD/USD Technical

• NZD/USD is putting pressure on support at 0.6156. Below, there is support at 0.6102
• 0.6235 and 0.6340 are the next resistance lines

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