NZD Rallies as Weaker USD Catches Wind from Slowing US Economy
The New Zealand Dollar (NZD) rose by 0.75% on Friday to trade around 0.5895, despite losing some momentum as it approaches the psychological 0.5900 level. The pair's gain is mainly due to weakness in the US Dollar (USD), which was weighed down by disappointing US economic data.
US Retail Sales contracted by 0.6% MoM in July, reversing a 0.2% increase in June and missing market expectations for a 0.1% rise. On an annual basis, sales increased by 5%. Weak consumer spending has reinforced concerns about the momentum of the US economy and put additional pressure on the Greenback.
The preliminary University of Michigan (UoM) Consumer Sentiment Index fell to 51 in August from 55.2 in July, below the 54.5 expected. However, one-year inflation expectations rose to 4.3% from 4.2%, which could limit the Federal Reserve's room for maneuver despite signs of slowing economic activity.
On the other hand, investors continue to anticipate a rate hike at the next meeting after the Reserve Bank of New Zealand (RBNZ) repeatedly stressed the need to withdraw some of its monetary policy support. However, the slowdown in manufacturing activity in New Zealand may raise questions about the extent of further tightening.