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New Zealand Dollar Soft After Services Sector Demonstrates Accelerating Contraction

February 15, 2021 at 12:21 by Vladimir Vyun

Kiwi denominationsThe New Zealand dollar was rather soft today, opening sharply lower and struggling to regain its footing. That is despite the market sentiment that was supportive of riskier currencies linked to commodities, such as the New Zealand dollar. Domestic macroeconomic data was negative for the kiwi.

The BusinessNZ Performance of Services Index dropped to 47.9 in January from 49.1 in December. A fall below the neutral 50.0 level of no-growth means that the sector was contracting at an accelerating pace. BusinessNZ chief executive Kirk Hope commented on the result:

While New Orders/Business (53.7) remained in expansion mode, the remaining sub-indices all displayed contraction, including Activity/Sales (46.4) and Employment (46.9). Looking at the comments made by respondents, the ongoing trend of contraction was typified by the influences of the Xmas period, ongoing COVID-19 related issues (including freight challenges) and a slower return to business as usual post holidays.

BNZ Senior Economist Doug Steel added further:

Combining last week’s very strong PMI with today’s soft PSI points to some slowing in growth. But we also need to factor in strong public sector jobs growth and a booming construction sector.

NZD/USD closed at 0.7220 on Friday, opened at 0.7202 today, and rose to 0.7217 by 12:19 GMT. EUR/NZD slipped from 1.6811 to 1.6799 after closing at 1.6782 at the end of the previous week. GBP/NZD gained from 1.9200 to 1.9257 after settling at 1.9182 on Friday.

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