By Danica Hampton The NZD/USD slipped on Friday night, falling from nearly 0.5950 to below 0.5840, as investors questioned the pace of the anticipated global recovery. Friday night's European data was awful. German Q1 GDP fell 3.8%q/q "“ that's a deeper contraction than any other major economy. Eurozone Q1 GDP fell 2.5%q/q, well below forecasts of 2.0%. While the US data tended to surpass expectations, this wasn't enough to rescue confidence and worries about the global outlook saw US equities dive. The S&P500 fell 1.1% on Friday and finished the week down 4.98% - its worst weekly loss since March. The backdrop of renewed global concern, falling equities and rising risk aversion saw investors ditch growth sensitive currencies like NZD in favour of the relative safety of the USD and JPY. NZD/JPY skidded from 57.00 to below 55.50 and NZD/USD was dragged below 0.5850. As a growth sensitive currency, the near-term fortunes of the NZD/USD will depend greatly on global sentiment. This week's Eurozone data will likely highlight the weakness in Europe and keep EUR/USD under pressure. We suspect this week's Q1 GDP releases from Japan (Wednesday) and UK (Thursday) will also underscore the risks to the global economy and we remain sceptical about equity markets' ability to hold on to recent gains. Any faltering in global equities and risk appetite will put growth sensitive currencies like NZD under selling pressure. From a fundamental perspective, we think NZD/USD looks over-stretched towards 0.6000 and if global sentiment continues to crumble we'd expect to see a deeper correction in NZD/USD back towards 0.5500-0.5550 in coming weeks. For today, we suspect bounces to be limited to 0.5950. Initial support is seen ahead of 0.5790. The USD strengthened against most major currencies on Friday night, as soft data and weak global equities prompted investors to reconsider upbeat views on the global recovery. Terrible European data cast doubts over the strength of the global recovery. German GDP fell a whopping 3.8%q/q in Q1, much worse than the 3.0% contraction forecast. This suggests Germany is in a deeper recession than any other major economy. GDP for the entire Eurozone fell 2.5%q/q, well down on the 2.0% drop expected. While the US data tended to print on the stronger side of expectations, downbeat comments from the Fed's Fisher tempered any optimism. The University of Michigan consumer sentiment index rose to 67.9 in May (vs. 67.0 forecast), the Empire manufacturing index rose to -4.55 in May (vs. -12.00 forecast) and the TIC data showed capital inflows of US$23.2b in March. However, Dallas Fed President Fisher said he expects it will be a slow recovery "not V-shaped "“ or even U-shaped "“ but a very slow slog". Worries about the global economy saw equity markets stumble. Growing pessimism about the outlook for global energy demand saw crude oil prices fall nearly 4% to US$56.34/barrel. Heavy loses in oil-related stocks took a toll on broader equity indices. The S&P500 fell 1.1% on Friday and finished the week down 4.98% - its worst weekly loss since March. Sliding stocks and worries about the global recovery saw investors flock to the relative safety of the USD and JPY. Concerns that policy makers in Europe aren't doing enough to stimulate activity took a particularly heavy toll on EUR/USD, which slipped from around 1.3650 to below 1.3500. If this week's Eurozone data (including German ZEW and Eurozone PMIs) continues to disappoint, we suspect EUR/USD will remain under pressure. Of course, sentiment towards the global economy will also be important for currencies. We suspect this week's UK and Japan's GDP will underscore the risks to the global economy and we remain sceptical about equity markets' ability to hold on to recent gains. Any faltering in global equities and risk appetite should help support "˜safe-haven' currencies like the USD and JPY. ____________ * Danica Hampton is BNZ's Currency Strategist. All of the research produced by the BNZ Markets team of economists is available here.