New Zealand Dollar charges toward 0.5900 as US Dollar loses ground

• The New Zealand Dollar gains 0.75% on Friday and approaches the psychological 0.5900 level.
• US Retail Sales decline by 0.6% in July, while consumer confidence deteriorates in August.
• The slowdown in the US economy weighs on the US Dollar, while New Zealand’s monetary policy outlook supports the Kiwi.

NZD/USD gains 0.75% on Friday and trades around 0.5895 at the time of writing, with its rally losing some momentum as it approaches the psychological 0.5900 level. The pair benefits mainly from weakness in the US Dollar (USD) following disappointing US economic data, while expectations surrounding the Reserve Bank of New Zealand (RBNZ) monetary policy continue to support the New Zealand Dollar (NZD).

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 reinforces concerns about the momentum of the US economy and puts additional pressure on the Greenback.

Data released on Friday also show a deterioration in household sentiment. The preliminary University of Michigan (UoM) Consumer Sentiment Index falls to 51 in August from 55.2 in July, below the 54.5 expected. The Current Conditions Index declines to 51.8 from 54.8, while the Expectations Index drops to 50.6 from 55.4.

Consumer inflation expectations, however, provide a less dovish signal for the Federal Reserve (Fed). One-year inflation expectations rise to 4.3% from 4.2%, while the five-year outlook remains unchanged at 3.3%. This development could limit the US central bank’s room for maneuver despite signs of slowing economic activity.

On the New Zealand side, the Kiwi also retains support from expectations of monetary tightening by the RBNZ. Investors continue to anticipate a rate hike at the next meeting after the central bank repeatedly stressed the need to withdraw some of its monetary policy support.

However, this outlook is tempered by slowing manufacturing activity in New Zealand. The Business NZ Performance of Manufacturing Index fell to 54.3 in July from a revised 60.1 in June. The indicator remains above the 50 threshold separating expansion from contraction, but the slowdown could raise questions about the extent of further monetary tightening.

Against this backdrop, the combination of a US Dollar weakened by disappointing macroeconomic data and expectations of tighter monetary policy in New Zealand allows NZD/USD to retain most of its gains on Friday, although the advance loses momentum just below 0.5900.

NZD/USD technical analysis

In the one-hour chart, NZD/USD trades at 0.5894. The pair holds a bullish near-term bias as it advances above both the 100-period simple moving average (SMA) at 0.5868 and the 200-period SMA at 0.5874, reinforcing a constructive backdrop while intraday momentum stretches into overbought territory with the Relative Strength Index (RSI) around 75.

On the topside, initial resistance appears at the horizontal barrier near 0.5900, ahead of a higher cap at 0.5925. On the downside, the 200-period SMA at 0.5874, together with the 100-period SMA at 0.5868, forms a nearby support cluster, with a deeper structural floor at the horizontal level of 0.5860 if corrective pressure extends.

(The technical analysis of this story was written with the help of an AI tool. Know more.)