There seems to be no respite to the economic indicators in New Zealand as the latest jobs numbers posted disappointing figures. Unemployment rate for the month of July stood at 5.9%, up from 5.8% last month, while on a quarterly basis labour market growth grew at a subdued pace of 0.3%, down from 0.7% previously.
The New Zealand economy added a mere 7000 new jobs being added in what is seen as the weakest increase in jobs since March 2013. Within the employment report, manufacturing sector was the driving force followed up by a growth in jobs in the construction section. The labour cost index for the country which reflects the wage growth came in at 1.6%, a soft print below market expectations of 1.7%.
Continued weak growth indicators reiterate the RBNZ’s dovish outlook and could signal further rate cuts in the upcoming meetings and thus keeping the Kiwi under pressure across the board. The New Zealand Central bank had already cut rates twice by 25bps respectively since June as plummeting global dairy prices and subdued inflation has sparked concerns from the Central bank to act in order to stimulate demand and growth.
NZD Market Reaction
The Kiwi continues to remain pressured to the downside, especially against the more hawkish currencies such as the Greenback and the British Pound. For the day, the NZDUSD was down -0.14%. The sharp decline in prices came after comments from Fed Member Dennis Lockhart yesterday evening, who noted that the US economy was ready to see the first rate hike in short term interest rates, after more than nine years of following a near Zero Interest Rate Policy. He was hawkish in his tone and suggested that only a ‘significant deterioration’ in the data would convince him otherwise. Lockhart’s speech comes on the back of James Bullard, who late Friday commented that “we are in a good shape” in regards to the Fed’s plans for a rate hike in September.
After the comments, the Greenback surged in late US trading yesterday weakening most of the commodity risk currencies. NZDUSD fell from the highs of 0.659 yesterday to post session lows near 0.653 at the time of writing.
EURNZD remains range bound trading within 1.6726 highs and 1.6366 lows and could indicate a potential break out in the near term. To the downside, support comes in at 1.565 through 1.5829 while to the upside, a break above 1.6726 will see EURNZD trade near a fresh two year high.
NZDJPY was seen struggling to break higher as the pair flirts near a two-year low at 81.2. The NZDJPY has formed a long term head and shoulders pattern with the neckline coming in at 84.04, a level that could be tested at some point ahead of the decline to 78.17 which would mark the completion of the head and shoulders pattern.
In terms of fundamental risk, today’s ADP private payroll numbers will be the clear market mover in terms of shaping the sentiment for the nonfarm payrolls due this Friday.