USD weakness supports Kiwi even as domestic data softens

The kiwi rose above 59 US cents for the first time since June, extending abroader US dollar sell-off that followed last week's soft inflation and retailsales data. These early week gains were somewhat short lived, however,as the greenback found some support on fading hopes for an imminentUS-Iran peace deal.Locally, the domestic calendar delivered a mixed set of releases in July'sSelected Price Indexes, retail spending, and services sector activity.July's SPI came in weaker than expected, supporting the RBNZ'sdownward revision to its Q3 inflation forecast in the July MPR statement,where the Bank lowered its projection to 3.3% y/y. That said, it is worthflagging that this revision came just ahead of the Q2 CPI release, whichitself surprised to the upside, printing 4.1% against the RBNZ's 3.9%expectation. The softness in the SPI data was not confined to volatilecomponents either, with some of the more persistent and slow-movingindexes, including rents, also surprising to the downside. The RBNZ nextupdates its forecasts at its August Monetary Policy Statement, andtoday's print will likely feed into how much further that Q3 view isrevised. Overall, the softer inflation data supports our view that the RBNZwill take a more gradual hiking path, and raise rates once more this year(in September), followed by just one more rate hike in February 2027.Retail spending told a firmer story, rebounding 1.3% MoM in July (3.5%YoY) reversing June’s 1.3% fall. The pick up through the month wassupported by stronger spending in household durables and hospitality,which were the categories that were weak in June. Core spending,whichexcludes fuel spend, rose 2.2% MoM (3.4% YoY). That said, despite themonthly pick up in spending, the broader trend remains subdued. Bothtotal and core spending still sit a touch below levels seen prior to theMiddle East conflict. Indeed, looking ahead, we expect spending growthto remain modest through the second half of the year as cost of livingpressures, higher interest rates, and a gradually softening labour marketweigh on households.BusinessNZ PSI eased to 50.6 in July from 50.9, still marking only thesecond month of expansion since December 2025. Looking at the details,only sales and inventories improved through the month, whilst neworders and supplier deliveries fell.Sentiment among respondents wasnotably weak with 64% of respondents remaining negative, with costpressures, elevated fuel prices, higher interest rates, and electionuncertainty cited as the main concernsGlobally, the focus has been on the Middle East. Brent crude prices haverisen to around $91/bbl (from around $88/bbl at the end of last week) ashopes of a US-Iran resolution continued to fade. The 60-day truceexpired Monday, and Trump signalled no interest in extending it, citingpressure from the naval blockade on Iran. His threat to strike Oman overthe blockade added to tensions, even as Oman and Iran edge towardtheir own deal on Hormuz traffic. That said this arrangement is unlikely tofully restore flows through the Persian Gulf without any US involvement.