- NZD/USD has pulled back towards 0.6500 on Tuesday amid stronger dollar and risky trading conditions.
- Weak New Zealand business survey data for May also weighed on the kiwi and fueled stagflation fears.
Month-end buying in the US dollar, coupled with negative New Zealand business survey data and the risk-off tone in US trade, as market participants returned from a long weekend, weighed heavily on NZD/USD on Tuesday. The pair pulled back to the 0.6500 level, having hit 0.6560 on Monday, where it is currently trading down 0.7%.
Turning to New Zealand data, the ANZ Business Outlook Index for May fell to -55.6% from -42.0% in the previous month, while the ANZ Own Activity Index fell to -4.7% from 8.0% previously. This marked the worst reading since April 2020, when much of the global economy was under lockdown due to the initial spread of Covid-19.
The data sparked fears that New Zealand’s economy could be headed for or already in stagflation. Meanwhile, remarks from the RBNZ’s deputy governor that the central bank should further reduce stimulus and tighten conditions beyond the neutral 2.0% rate raised concerns about the outlook for the economy. Tighter financial conditions usually boost a currency, but not if the economy risks slipping into recession.
US data such as the strong Chicago PMI and the BC Consumer Confidence survey for May have likely helped the dollar maintain the previous session’s gains. However, top-tier US data due out this week, such as the ISM Manufacturing PMI and the official labor market report, also for May, will be more important. Despite Tuesday’s losses, the NZD/USD looks set to end the month up around 1.0%.
Technical levels
Source: Fx Street
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