On Monday, the New Zealand dollar closed its 4th straight winning week and was in positive territory. NZD/USD traded at about 0.6076, up 0.37% for the day in the European session.
In July, the Performance of Services Index for New Zealand rose to 44.6, sharply higher than June’s 40.7. The index was still in contraction territory for the 5th straight month and all industries reported contraction, which is concerning.
More than 60% of New Zealand’s GDP is made up of the services sector and the continued contraction indicates a weak economy.
Last week, the Reserve Bank of New Zealand implemented an initial rate cut and expects that GDP will drop 0.5% in Q2 and 0.2% in the fourth quarter. With two consecutive quarters of negative growth, this would make it a technical recession.
Data was solid in the US last week, as retail sales rose 1% and inflation dropped to 2.9% from 3%. In July, UoM consumer sentiment was higher and beat forecasts, while inflation expectations were the same at 2.9%, as expected.
Although the markets were in turmoil after a weak US employment report earlier in the month, last week’s strong US numbers resulted in improved risk appetite which has harmed the US dollar.
Markets anticipate a rate cut at the Federal Reserve’s September meeting with a 0.25% cut being the most likely move.
