New Zealand’s Business NZ Performance Services Index (PSI) remained stable at 49.1 in March. This figure indicates that the service sector is contracting slightly, as a reading below 50 reflects a downturn.
The AUD/USD pair showed modest gains near 0.6300 following positive news about US tariffs on Chinese electronics. USD/JPY was also trading higher, around 143.50, influenced by a rebound in the US Dollar and expectations regarding monetary policies.
Gold Prices Retreat
Gold prices have retreated from a record high of $3,245 due to a stronger US Dollar and reduced demand for safe-havens. Upcoming economic data releases include CPI figures from various countries and retail sales from the United States.
Concerns about a potential recession have eased somewhat, with Wall Street experiencing gains after the tariff delay was announced. However, uncertainties regarding the ongoing trade tensions with China persist.
The Service Index staying just below 50 signals mild contraction in New Zealand’s service sector, as companies appear to hold back on expansion. Not surprising in a region faced with both internal cost pressures and softer foreign demand. A reading under 50 doesn’t scream full retreat, but it lays bare the hesitation in the sector. For those involved in rates and index futures tied to regional growth, it’s an early flag to stay watchful.
Turning to currency markets, the AUD climbed modestly after sentiment improved on the back of a delay in US tariffs targeting Chinese goods. The move likely gave some breathing room to export-driven economies, whose outlooks have been dulled by prolonged trade disputes. That said, gains in the Aussie were not explosive. The 0.6300 threshold still leaves the currency with a cautious tone, particularly as domestic data continues to underwhelm and Chinese activity remains sluggish. For FX options traders, maintaining strategies that allow for short-term strength but retain long-side risk premiums could be prudent. The relief rally may not last if tariffs return to the conversation.
Market Implications
Elsewhere, the move in USD/JPY above 143.00 coincided with the broader recovery in the US Dollar. Rebounding from previous softness, the greenback is benefiting from reassessments on the timing and magnitude of any policy adjustments by the Federal Reserve. The climb in this pair typically reflects widening yield differentials between Japan and the United States. Japanese authorities have signalled discomfort with excessive currency moves before, so it’s worth remaining wary of verbal intervention. Cross-volatility hedging here might require a slight bump, given how reactive JPY-based pairs can be during policy-sensitive weeks.
Meanwhile, gold, having touched above $3,200 per ounce earlier in the month, came off sharply. A firmer Dollar combined with calming fears over a global downturn removed urgency from the previous flight to safety. The rally had been aggressive, partly driven by geopolitical hedges and speculation, but the retreat shows not all hands were committed. Lower spot prices and reduced implied volatility could prompt some restructuring in precious metal derivatives, particularly for those exposed through calendar spreads or delta-hedged calls.
US retail sales and inflation prints will dominate the next round of macro themes. Consumption patterns in the States remain pivotal, particularly in assessing whether recent optimism about a soft landing holds. The recent moderation in recession concerns, especially after markets rallied on eased trade tensions, is encouraging. However, these shifts often come with a lag in underlying data. Inflation surprises, whether higher or lower, are likely to reshape forward curves quickly. We are watching price movements around two-year swap spreads and short-dated TIPS breakevens, as they will offer hints at any shift in rate cut expectations.
Although trade tensions are not dominating in the same way they were six months ago, uncertainty still lingers. Tech and electronics tariffs remain a pressure point. Even if temporarily postponed, their shadow affects business sentiment and forward guidance. Option skews in equity index futures have already started reflecting demand for downside protection over the next quarter. This suggests that not all is priced in, especially with earlier rate cut expectations being delayed amid stronger US economic performance. timeliness and accuracy in response will be everything over the next few macro data cycles.
