New Zealand dollar rises on strong services data

The New Zealand dollar continues to gain ground and has extended its gains for a fourth straight day. In the North American session, NZD/USD is trading at 0.6149, up 0.44%.

Services PMI hits 8-month high

New Zealand’s BusinessNZ Performance of Services Index improved to 52.1 in January from 48.8 in December, above the forecast of 49.6. This put the index in expansion territory and marked the highest pace of activity since July 2023. The 50 level separates contraction from expansion. This is welcome news for the economy, which has cooled down due the Reserve Bank of New Zealand’s steep rate-tightening cycle.

Is the RBNZ done with raising rates? The markets think so and have priced a rate cut for the middle of the year. The central bank has been more cautious and has pushed back against these expectations. Governor Orr’s said last week that inflation expectations remain too high, the latest salvo aimed at dampening rate cut speculation. At its last meeting in November, the RBNZ said it hadn’t ruled out a rate hike and projected no rate cuts before mid-2025.

New Zealand’s inflation rate is running at 4.7%, more than double the midpoint of the 1%-3% target range. The RBNZ is unlikely to trim rates until inflation falls much closer to 2% and unless inflation drops dramatically, a rate before late in the year is looking doubtful. The RBNZ meets next on February 28^th and is expected to keep rates unchanged for a fifth straight time.

NZD/USD Technical

• NZD/USD is putting pressure on resistance at 0.6168. Above, there is resistance at 0.6211
• 0.6109 and 0.6066 are providing support

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