New Zealand Dollar Slips After Weak Jobs Report

The New Zealand dollar slipped to around $0.587, retreating from a two-month high after a weaker-than-expected jobs report raised doubts about how high interest rates may rise this year. New Zealand's unemployment rate climbed to 5.6% in the second quarter, the highest level since the third quarter of 2015 and above the expected 5.4%, pointing to growing slack in the labor market. Although employment increased 0.5% from the previous quarter and outpaced forecasts of a 0.1% rise, the gain was largely driven by a sharp increase in the labor force participation rate. Meanwhile, annual wage growth remained subdued at 2.0%, suggesting wage pressures are unlikely to fuel inflation and reducing the case for an aggressive tightening cycle. Still, markets continued to price in a September rate hike after the Reserve Bank of New Zealand signaled last month that further tightening would likely be needed to remove monetary stimulus and keep inflation under control.

The New Zealand dollar rose to around $0.589, reaching a two-month high, as the latest wave of yen buying weighed broadly on the US dollar, while fresh negotiations in the Middle East supported risk sentiment. The greenback remained under pressure after Japan confirmed it had engaged in joint yen-buying intervention with the US. Meanwhile, President Donald Trump said on Monday that talks with Iran were underway after he canceled a weekend attack against the country, raising hopes for progress toward resolving the months-long conflict. Improving domestic sentiment, with New Zealand businesses and consumers becoming more optimistic, also underpinned the kiwi. Traders now await the country’s second-quarter jobs report for further clues on the state of the economy. Currently, markets are almost fully pricing in a quarter-point rate hike by the Reserve Bank of New Zealand in September.

The New Zealand dollar hovered around $0.587 on Friday, close to an eight-week high, supported by a softer US dollar and positive domestic economic news. The US dollar came under pressure following the Federal Reserve’s cautious policy stance and a suspected Japanese intervention in the forex market to support the yen. On the domestic front, the ANZ-Roy Morgan Consumer Confidence Index rose 8 points in July to 99.3, marking its highest level in five months and a significant recovery from the low reached in April. The survey was released a day after a business confidence survey from the same bank showed firms had also become more optimistic. However, ANZ Chief Economist Sharon Zollner noted that developments in the Middle East could continue to weigh on both business and consumer confidence as long as the situation remains volatile. Meanwhile, markets are almost fully pricing in a 25-bp rate hike by the RBNZ in September. The kiwi has gained more than 1% this week and over 3% in July.