NZD/USD recovers above 0.5900 as traders weigh US downgrade, mixed New Zealand data

• NZD/USD edges higher on Monday, but stalls near the previous day's high.
• New Zealand's services sector contracts further in April as the PSI index drops to 48.5.
• Q1 producer prices rise sharply in New Zealand, with inputs rising by 2.9% and outputs by 2.1%.

The New Zealand Dollar (NZD) is recovering firmly above the 0.5900 mark agains the US Dollar (USD) on Monday, last seen trading around 0.5910, up nearly 0.50% on the day. The NZD/USD pair draws support from broad US Dollar weakness following Moody's downgrade of the US credit rating. However, the pair is struggling to break above the previous day's high, as mixed domestic data weighs on sentiment toward the New Zealand Dollar.

The latest Business NZ Performance of Services Index (PSI) fell to 48.5 in April from 49.1 in March, marking the lowest level since November and reinforcing signs of continued contraction in New Zealand's service sector.

BNZ Senior Economist Doug Steel noted, "For all the commentary around the economic recovery, the PSI is a good reminder that current conditions are extremely challenging. New Zealand's PSI remains weaker than all our key trading partners. At 48.5, it's consistent with a service sector still moving backwards."

On the inflation front, the Producer Price Index (PPI) surged in the first quarter. Input prices jumped 2.9% QoQ, rebounding from a 0.9% drop in Q4, while output prices rose 2.1%, reversing a 0.1% decline. Both figures marked the strongest increases since Q2 2022, reflecting rising cost pressures in the economy.

Looking ahead, traders will focus on a busy domestic economic data calendar that could influence sentiment toward the New Zealand Dollar. On Wednesday, the trade balance figures will offer insight into export and import dynamics amid a weakening global demand environment. This will be followed by the government's annual budget release on Thursday, expected to slash 2025 baseline spending to NZ$1.3 billion from NZ$2.4 billion, according to Radio New Zealand. The week concludes with the Q1 Retail Sales report on Friday, a key indicator of consumer spending that could shape market expectations around future RBNZ policy decisions.

Meanwhile, the US Dollar Index (DXY) remains under pressure near the 100.00 mark after Moody's downgraded the US credit rating to "Aa1" on Friday. Traders will closely monitor speeches from Federal Reserve (Fed) officials today, such as Fed Bank of Dallas President Lorie Logan and President of the Fed Bank of Minneapolis Neel Kashkari, for insights into the US monetary policy trajectory.