NZD/USD drops on New Zealand fiscal plans, Powell comments, mixed US data

• New Zealand's NZ$190M social investment fund fails to lift NZD amid cautious market mood.
• Fed Chair Powell flags the need to adapt the policy framework to persistent supply shocks.
• Cooling US inflation and soft retail sales weigh on sentiment, with the US Dollar supported by Powell's policy remarks.

The New Zealand Dollar (NZD) is weakening against the US Dollar (USD) on Thursday, pressured by a stronger Greenback and cautious investor reaction to recent macroeconomic developments.

At the time of writing, NZD/USD is down 0.43% at 0.587, as markets assess New Zealand's latest fiscal policy announcement, softer US inflation data, and comments from Federal Reserve (Fed) Chair Jerome Powell.

US inflation cools, Retail Sales miss forecasts, but Powell's comments steady the US Dollar

The move lower in NZD/USD comes despite US data showing softer inflationary pressures, which would typically weigh on the Greenback and offer some support to risk-sensitive currencies like the Kiwi. April producer price inflation and core measures came in below expectations, reinforcing market bets that the Federal Reserve may begin cutting interest rates later this year. However, broader risk appetite was dented by a combination of weak US retail sales and cautionary remarks from Federal Reserve Chair Jerome Powell.

Speaking on Thursday, Powell acknowledged that the Fed's policy framework may require adjustment in response to more frequent supply shocks. "The framework needs to be robust to many circumstances, including a world where supply shocks may be more frequent and persistent," Powell said, according to Reuters. He added that while structural changes may be needed, the central bank's focus on maintaining well-anchored inflation expectations remains unchanged. These remarks, along with underwhelming consumer data, supported a mild bid into the US Dollar as traders reassessed the near-term growth outlook.

New Zealand unveils social investment fund

On the domestic front, the New Zealand government announced a NZ$190 million ($112 million) social investment fund as part of its upcoming 2025 budget. Finance Minister Nicola Willis described it as a targeted, data-driven initiative aimed at improving outcomes for vulnerable groups. "It's about government investing earlier, smarter, and with much more transparent measurement of the impact interventions are having," Willis said. While the program reflects a longer-term commitment to fiscal discipline and social outcomes, it offered little immediate support to the currency amid prevailing macro headwinds.

Upcoming New Zealand data in focus as RBNZ outlook and growth signals take center stage

Looking ahead, Thursday evening's Business NZ Performance of Manufacturing Index and Friday's RBNZ inflation expectations will be closely watched. The PMI, last at 53.2, serves as a gauge of economic momentum, while the inflation survey (previously 2.06%) could influence monetary policy expectations. A rise in inflation expectations would reinforce a hawkish RBNZ stance, potentially lending support to the Kiwi.