• NZD/USD has slipped back towards 0.6500 on Tuesday amid a stronger buck plus risk-off trading conditions.
• Downbeat New Zealand business survey data for May has also weighed on the kiwi and triggered stagflation fears.

Month-end buying in the US dollar combined with downbeat New Zealand business survey data and a risk-off tone to US trade as market participants there returned from a long weekend weighed heavily on NZD/USD on Tuesday. The pair dropped back to probe the 0.6500 level, having been as high as the 0.6560s as recently as Monday, where it currently trades lower on the day by about 0.7%.

Regarding the downbeat New Zealand data, the headline ANZ Business Outlook Index for May dropped to -55.6% from -42.0% a month earlier, while the ANZ Own Activity Index dropped to -4.7% from 8.0% previously. That marked the worst reading since April 2020, when much of the global economy was under lockdown due to the initial spread of Covid-19.

The data triggered fears that New Zealand's economy might be headed towards/already in stagflation. Meanwhile, remarks from the RBNZ’s Deputy Governor that the central bank needs to keep decreasing stimulus and tighten conditions beyond the neutral rate of 2.0% added to concerns about the outlook for the economy. Tighter financial conditions tend to boost a currency, but not if they risk sending the economy into recession.

US data in the form of robust Chicago PMI and CB Consumer Confidence survey data for May have likely helped the US dollar hold onto earlier session gains. But tier one US data releases later this week in the form of ISM Manufacturing PMI and the official labour market report, also for May, will be more important. Despite Tuesday’s losses, NZD/USD still looks on course to end the month just shy of 1.0% higher.