New Zealand GDP expected to contract, New Zealand dollar recovers

The New Zealand dollar has posted gains on Wednesday. In the North American session, NZD/USD is trading at 0.6042, up 0.45% on the day. The New Zealand dollar sustained sharp losses a day earlier, declining 0.75%.

The New Zealand economy is in recession and the markets are bracing for a contraction in first-quarter GDP of 0.8%. The economy declined in Q4 2024 by 1.1%.

A weak GDP report would put pressure on the Reserve Bank of New Zealand to reduce interest rates at the next meeting on July 9. The Reserve Bank has been aggressive and lowered rates for a sixth straight time in May to 3.25%, for a total of 225 basis points.

US retail sales take a hit

Is the resilient US consumer showing cracks?

US retail sales slumped in May, falling 0.9% m/m. This was well below the revised -0.1% reading in April and worse than the market estimate of -0.7%. Annually, retail sales fell to 3.3%, down sharply from a revised 5.0%.

The monthly retail sales is particularly concerning because it marked a second straight decline. The pre-tariff spike in consumer spending has fizzled as the tariffs have taken effect. Consumers are wary that the tariffs will boost inflation and dampen consumer spending power and concerns about hiring have risen, prompting consumers to batten down the hatches in anticipation of tougher times ahead.

If additional key US data heads lower, this will increase pressure on the Federal Reserve to lower interest rates. The markets have priced in a hold at Wednesday's meeting at practically 100%, with little chance of a rate cut before September.

• NZD/USD is testing resistance at 0.6035. Above, there is resistance at 0.6060
• 0.5990 and 0.5965 and providing support