New Zealand Dollar Drops after Jobs Data But Doesn’t Make Critical Break

Talking Points:

• Employers in New Zealand increase employment 0.3% last quarter but the jobless rate rose
• New Zealand Dollar declined 0.2% after 2Q employment data was released
• Market participants are pricing an 86 percent probability of a September cut

The New Zealand Dollar (NZD) declined 0.2% after employment data for the second quarter was released by Statistics New Zealand. According to the data, New Zealand’s unemployment rate rose as expected for a third straight quarter to 5.9% from a previous reading of 5.8%. The period’s participation rate dropped unexpectedly from its multi-decade high 69.5% to 69.3% compared to a forecast of 69.6%. Through the quarter 0.3% increase in new jobs contrasted forecasts for a 0.5% increase, while employment increased 3.0% from a year ago compared to a forecast of 3.4%.

After the immediate decline that followed the news NZDUSD quickly bounced back before the pair transitioned to more significant lows below 0.6500. As the Kiwi Dollar bounced from its initial decline, New Zealand bond yields were seen joining in with perceptible gains from the 2yr, 7yr, and 10yr tenors. With the data prints not straying too far from the forecasts, there is not much to leverage the existing dovish view for the RBNZ. According to overnight swaps, there is an 86 percent probability that the RBNZ will cut rates another 25 basis points at its next policy meeting in September.