NZD TALKING POINTS – NEW ZEALAND UNEMPLOYMENT RATE, NZD/USD, FOMC
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The New Zealand fell alongside bond yields after mixed employment data crossed the wires. While the unemployment rate fell to 4.2 percent and beat the 4.3 percent forecast, the participation rate and employment change disappointed. In fact, labor force participation fell to its weakest point since Q2 2017. The undershooting data is a deviation from the country’s overall economic trajectory which has seen indicators fall in line with analysts’ expectations for the past few months.
NZD/USD, NZD/JPY – Daily Chart
Slower growth in employment undercuts inflationary pressure which the RBNZ has reiterated is still below its two percent target. This gives the central bank further impetus to cut rates following its meeting in March that sent the New Zealand Dollar tumbling. This was subsequently followed by weaker-than-expected CPI in April, likely a result of the ailment caused by reduced consumption as a result of fewer hirings
Overnight index swaps are currently pricing in a 76.1 percent probability of a cut by September. The monetary policy statement from the March 27 meeting cited “reduced momentum in domestic spending” and slower global growth as key concerns that caused the central bank to pivot to a more dovish disposition. Much like what ECB officials said in March, risks have broadly tilted towards the downside.
The cycle-sensitive New Zealand Dollar will continue to monitor US-China trade talks as the two appear to be closing in on a deal. US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are traveling to Beijing today to continue the negotiations. However, given prevailing global growth trends,
the broader questions remain that even if a US-China trade spat is resolved, will it be enough to lift global sentiment?
Looking ahead, the cycle-sensitive New Zealand Dollar – along with global markets – will be eyeing the upcoming FOMC meeting. Market participants are expected for the central bank to hold the benchmark rate where it is, with commentary from Fed Chairman Jerome Powell as the key catalyst for any major market moves. Get live coverage of the rate decision and market reaction here!
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— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter