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New Zealand's Unemployment Rate Higher, RBNZ Faces Strong Kiwi

New Zealand's Unemployment Rate Higher, RBNZ Faces Strong Kiwi

Gregory Marks,

THE TAKEAWAY: NZ unemployment rate ticks up 0.2% QoQ to 6.4% > RBNZ faces tough road ahead > NZD/USD Lower

New Zealand’s unemployment rate edged up in the second quarter to 6.4% from 6.2% prior; economists surveyed by Bloomberg had initially estimated a 6.3% print. Although the economy has not been directly impacted by a slowdown in China to the extent of Australia, the domino effect still lingers. Australia accounts for 21% of New Zealand’s exports while China follows at 15%. (source: CIA World Factbook)

Following a Chinese and Russian import ban over some of New Zealand’s tainted milk products, the New Zealand Dollar took a hit in early trading this week. Although milk based products account for a large portion of New Zealand’s exports, participants are betting that any negative impact will be short lived as the Kiwi has retraced almost all of Sunday’s initial losses.

NZD/USD (5-Minute Chart)

New_Zealands_Unemployment_Rate_Higher_RBNZ_Faces_Strong_Kiwi_body_Picture_2.png, New Zealand's Unemployment Rate Higher, RBNZ Faces Strong Kiwi

Source: FXCM Marketscope

Traders placed bullish bets ahead of the print, but the NZD/USD pair lost over 20 pips following the release. Price action in the Kiwi has picked up in recent months as RBNZ Governor Wheeler has openly made comments about the Kiwi being overvalued. With U.S. interest rates near record lows, cash has followed yield around the globe and with New Zealand’s benchmark interest rate at 2.50%, parking money in New Zealand has driven the Kiwi higher. The Kiwi is bound to be impacted in the coming months with concerns over the Chinese and Australian economies lingering, in addition to taper fears. With a possible housing bubble brewing and a desire by the RBNZ to not drive the Kiwi higher by raising interest rates, the central bank faces a tough road ahead.

New_Zealands_Unemployment_Rate_Higher_RBNZ_Faces_Strong_Kiwi_body_Picture_1.png, New Zealand's Unemployment Rate Higher, RBNZ Faces Strong Kiwi

Gregory Marks, DailyFX Research Team

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