Insights 
VT 
NZD/USD remains steady above 0.6000 following mixed economic data from China. China’s Retail Sales increased by 6.4% year-over-year in May, exceeding expectations, while Industrial Production grew by 5.8% YoY but below forecasts.
New Zealand’s Business NZ Performance of Services Index fell to 44.0 in May, the lowest since June 2024, indicating contraction for the fourth consecutive month. The NZD/USD pair might face upward limitations due to tensions in the Middle East, with ongoing hostilities between Israel and Iran.
Impact Of China’s Economy On New Zealand Dollar
The New Zealand Dollar is impacted by the nation’s economic health and central bank policy. The Chinese economy affects the Kiwi due to China being New Zealand’s largest trading partner, and dairy prices also influence the currency given its status as New Zealand’s main export.
The Reserve Bank of New Zealand influences NZD through interest rate adjustments to control inflation. A strong economy supports NZD; weak economic data can lead to depreciation. The Kiwi benefits from risk-on periods but weakens during market uncertainty as investors seek safer assets.
We’ve seen NZD/USD keep itself above the 0.6000 threshold, which is worth noting given the mix of data emerging from China lately. Retail sales figures coming in higher than predicted — a 6.4% increase — indicates that consumer spending hasn’t slowed as much as feared. However, industrial production missing expectations – despite a 5.8% yearly rise – paints a less encouraging picture from the manufacturing side. That uneven performance can create volatility, especially in commodity- and China-sensitive currencies.
Interestingly, the service sector in New Zealand continues to shrink, and the latest Business NZ survey only deepens the concern. May’s print at 44.0 has now marked four straight months of contraction and was the lowest reading in nearly a year. When services data dips this far below 50, we generally expect to see knock-on effects in employment and broader momentum, which can linger for longer than markets initially anticipate.
Broader Economic Concerns And Market Reactions
This isn’t happening in a vacuum, of course. The broader external environment remains tense. Heightened hostilities involving Israel and Iran have nudged broader sentiment towards caution. This undermines appetite for currencies typically tied to higher risk, such as NZD. Any sort of Middle East flare-up tends to drive funds into traditional safe havens — think US Treasuries or the Japanese Yen — and that naturally puts pressure on currencies considered more exposed to global growth trends.
We’ve watched as traders reassess positioning under this backdrop. Increased uncertainty often leads to lighter Kiwi exposure, particularly given how closely the economy is tied to China. That’s not new, but it does matter more when Chinese factory data underdelivers while retail is optimistic — the mixed signals create hesitancy rather than conviction.
On our side, our lens is focused on the Reserve Bank of New Zealand. Their stance on interest rates has, unsurprisingly, become more influential again. With inflationary pressure still embedded in parts of the economy, the RBNZ hasn’t ruled out further tightening. However, consistently soft domestic figures, such as the services index, raise the question of whether more restrictive policy is suitable. Traders are right now pricing in a delicate balance — and it wouldn’t take much to nudge expectations in either direction.
We also can’t overlook how much dairy still plays into this equation. With it being the country’s largest export, shifts in global prices affect the current account as well as rural income. If dairy auctions continue on a downward slope, that could quietly add layers of downside risk to NZD, especially in tandem with a weakening services sector.
Positioning over the next few weeks may require more agility. Those active in derivatives tied to NZD/USD are likely watching several inputs at once – Chinese recovery momentum, Middle East geopolitics, RBNZ commentary, and commodity movements. Reactions have not been one-sided, and momentum has stayed tentative. With risks stacked both ways, short-term carry trades could remain vulnerable to headline-driven pullbacks.
