NZD/USD Rises Toward 0.62000 Mark On Weaker U.S. Dollar, Fresh New Zealand Retail Sales Data Disappoints
Key Takeaways:
- NZD/USD cross rose toward the 0.62000 mark on Friday during the Asian session
- Weaker-than-expected New Zealand retail sales data overshadowed
- Hawkish Fed expectations act as a tailwind to the NZD/USD pair
- A fresh round of positive U.S. macro data extends support to the safe-haven greenback and should help cap the upside for the pair
NZD/USD cross-registered slight gains on Friday during the Asian session as a weaker U.S. dollar fresh batch of disappointing N.Z. macro data somewhat weighed on the Kiwi, helping the shared currency to post an eighth successive winning day. As of press time, the NZD/USD pair is trading at 0.61994, up 0.08%/4.8 pips for the day, and looks set to maintain its bid tone heading into the European session.
A Statistics New Zealand report released earlier today showed Retail sales in New Zealand dropped by 1.9% quarter-on-quarter in the three months to December of 2023, following a downwardly revised 0.8% fall in the previous quarter. It pointed to the eighth consecutive quarter of decline in retail spending as 14 of the 15 retail industries had lower sales volumes in the December 2023 quarter compared with the September 2023 quarter. Every year, retail spending sank by 4.1% in the fourth quarter after dropping by 3.4% in the corresponding period of the previous year.
The weaker-than-expected N.Z. retail sales data report joins January's inflation data report, showed the annual inflation rate in New Zealand eased to 4.7% in the three months to December of 2023, from 5.6% in the third quarter to suggest the Reserve Bank of New Zealand's (RBNZ) could be forced to start cutting rates soon despite initially ruling out rate cuts until 2025 at the earliest.
Further weighing on the Kiwi is the downbeat N.Z. Trade Balance data report released on Thursday showed New Zealand's trade deficit narrowed to $0.976 billion in January 2024 from $2.095 billion in the same month of the preceding year. Exports dropped 7.1% from a year earlier to $4.9 billion, while imports declined by 20% to $5.9 billion.
The combination of adverse factors undermines the Kiwi, suggesting the current uptick runs chances of fizzling out sooner or later.
Moreover, the Kiwi continues to be undermined by elevated U.S. treasury bond yields bolstered by hawkish Fed expectations, which extend support to the greenback, suggesting the path of least resistance for the NZD/USD pair is to the upside.
Markets seem convinced that the Fed will leave rates unchanged during the March and May meetings and start cutting rates during the third quarter of 2024 after
the January FOMC Meeting minutes released on Wednesday showed the Fed is concerned about cutting rates too soon, signaling early rate cuts were entirely off the table.
"In discussing the policy outlook, participants judged that the policy rate was likely at its peak for this tightening cycle," the minutes stated. But, "Participants generally noted that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent."
The January FOMC Meeting minutes come days after a U.S. Bureau of Labor Statistics (BLS) report showed consumer and wholesale inflation rose in the U.S. in January when combined with robust U.S. job data and the recent hawkish Fed comments, fully debunks the idea of early aggressive rate cuts and supports the view that rates are likely to stay higher for longer.
That said, further contributing to the positive sentiment around the buck was the upbeat macro data released on Thursday, which showed the number of people claiming unemployment benefits in the U.S. sank by 12,000 to 201,000 on the week ending February 17th, well below market expectations of 218,000, to mark the lowest claim count since the 16-month low of 189,000 recorded five weeks prior, a U.S. Department of Labor report showed.
Additionally, existing home sales in the U.S. rose 3.1% month-over-month to a seasonally adjusted annualized rate of 4 million units in January 2024, the highest level in five months, compared to 3.88 million in December and market forecasts of 3.97 million.
Moreover, the S&P Global Flash U.S. Manufacturing PMI rose to 51.5 in February 2024 from 50.7 in January, beating forecasts of 50.5. The reading pointed to the strongest growth in the factory sector since September 2022, as output increased for the first time in three months and at the fastest pace since April 2023 due to more robust client demand and a sharper uptick in new orders, which rose the most since May 2022.
Furthermore, according to preliminary estimates, the S&P Global U.S. Services PMI eased to 51.3 in February of 2024 from 52.5 in the earlier month, missing market expectations of 52. Albeit slower, the result pointed to 13 consecutive months of expansion in the U.S. private services sector, pointing to some resilience from the Federal Reserve's prolonged restrictive policy. Services
As we advance, without any significant market-moving economic news data, the Treasury bond yields and the general market risk sentiment will continue to influence U.S. dollar dynamics and ultimately provide directional impetus to the NZD/USD cross.
