NZD/USD edges higher as upbeat New Zealand data offsets cautious US Dollar tone

• NZD/USD rises toward 0.5894, snapping a two-day losing streak while holding within weekly range.
• Stronger NZ Business PMI and higher RBNZ inflation expectations support the Kiwi.
• DXY trades flat ahead of US consumer sentiment data, as weak US indicators fuel Fed rate cut bets

NZD/USD edges higher to trade near 0.5894 at the start of the American trading hours on Friday, snapping a two-day losing streak. The pair is holding within this week's range as it draws support from upbeat domestic data and rising inflation expectations. The 50-day Exponential Moving Average (EMA) near the 0.5850 psychological level offers a solid technical floor.

New Zealand's Business NZ Purchasing Managers' Index (PMI) climbed to 53.9 in April from 53.2, reflecting ongoing expansion in the manufacturing sector and offering signs of resilience in the local economy. Meanwhile, the Reserve Bank of New Zealand's (RBNZ) quarterly survey showed businesses now expect inflation to average 2.29% over the next two years, up from 2.06% in the prior quarter.

While the RBNZ is still widely expected to deliver a 25 basis point rate cut later this month, the pickup in inflation expectations may cause policymakers to proceed more cautiously going forward.

ASB Bank senior economist Mark Smith said the central bank would be "somewhat wary" of the rise in inflation expectations, adding that recent tariff-related concerns could further fuel price pressures. "We still expect a 25bp OCR cut later this month and a 2.75 percent OCR endpoint, but this is conditional on the expected mid-2025 lift in inflation proving to be transitory," he noted.

On the United States (US) side, the US Dollar Index (DXY) trimmed earlier losses and trades flat around 100.30 on Friday. The US Dollar found some support as hopes grew for easing tensions between the US and China, along with expectations that the Federal Reserve (Fed) could start cutting interest rates in the coming months.

This week's US economic data has mostly been weak, with Housing Starts, Building Permits, and inflation readings (CPI and PPI) all coming in below expectations. Retail sales were also softer than forecast. These signs of slowing momentum have strengthened bets on two Fed rate cuts this year. However, a surprise increase in export and import prices added some uncertainty to the outlook.

The preliminary University of Michigan Consumer Sentiment report for May showed confidence falling sharply to 50.8 from 52.2 in April, well below expectations of 53.4. The sharp decline signals growing concerns among US households and adds to the case for Fed policy easing in the months ahead.

Looking ahead, attention will turn to a series of key New Zealand economic data releases next week, beginning with the Producer Price Index (PPI) on Monday.