China's Services Purchasing Managers' Index (PMI), as reported by RatingDog, rose sharply to 54.4 in May from 52.6 in April, surpassing consensus estimates of 52.3 and marking the fastest pace of expansion in three months [1][2]. This upbeat data provided a modest lift to antipodean currencies, notably the New Zealand Dollar (NZD), which snapped a two-day losing streak against the US Dollar (USD) and climbed to the 0.5935 region during the Asian session on Wednesday [1]. The NZD/USD pair's gains were further supported by the Reserve Bank of New Zealand's (RBNZ) hawkish shift, with forecasts projecting a 25 basis points rate increase at the upcoming July 8 meeting and an Official Cash Rate (OCR) potentially reaching 2.85% by year-end, implying up to three rate hikes [1]. In contrast, traders are pricing in just over a 50% chance that the US Federal Reserve will raise rates once by the end of the year [1].
Despite the positive Chinese PMI data, the Australian Dollar (AUD) remained weak, with AUD/USD losing 0.03% on the day to 0.7178 as of writing [2]. This suggests that while the Chinese economic surprise lifted the NZD, it did not have the same effect on the AUD, which is often considered a proxy for Chinese economic health [2].
Geopolitical uncertainties continue to limit upside potential for the NZD/USD pair. Recent developments include US forces conducting self-defence strikes on Iran’s Qeshm Island and intercepting Iranian missile and drone attacks, as well as US Secretary of State Marco Rubio stating that sanctions relief for Iran is conditional on giving up enriched uranium [1]. US President Donald Trump announced an open-ended extension of the ceasefire and continuation of a US blockade until negotiations are concluded, maintaining a geopolitical risk premium that may support the USD and cap NZD gains [1].
Market participants are now looking ahead to the release of the US ADP report on private-sector employment and ISM Services PMI for further direction during the North American session [1].
CONCLUSION
China's stronger-than-expected Services PMI provided a boost to the New Zealand Dollar, while the Australian Dollar remained subdued despite the positive data. Persistent geopolitical risks and upcoming US economic releases are expected to influence further market movements. The overall market sentiment is cautiously optimistic, with medium impact from the event.