For a day dominated by market nerves, the New Zealand dollar has had a blinder of a day. And not because the country’s national cricket team handily beat Australia in a one-day international.
The kiwi dollar is up 1.2 per cent at $0.6590 to a nearly one-month high, buoyed by a surprisingly strong employment report earlier in the day.
Employment grew by 0.9 per cent in the December quarter, reversing a revised 0.5 per cent drop (previously -0.4 per cent) in the three months to September 30. That took the annual rate to 1.3 per cent, a moderation from September’s 1.5 per cent pace, but it was ahead of economists’ forecasts.
But the big beat was in the unemployment rate, which tumbled to 5.3 per cent at the end of the fourth quarter, from 6 per cent at the end of September, and against expectations for it to rise to 6.1 per cent. That came courtesy of a drop in the participation rate to 68.4 per cent from (a revised) 68.7 per cent.
That put a rocket under the kiwi dollar, which far outpaced the next-best performing Asian currency, the Australian dollar and its 0.2 per cent gain.
Still, JP Morgan Sydney-based economist Ben Jarman said that a broad read of the data, and given “festering issues with the terms of trade and financial stability, we don’t see today’s data as meaningfully changing that outlook, given the flattering effect of participation swings.”
We are also mindful of prior episodes where the NZ labour data delivered similar volatility, only to mean-revert (recall the journey from 6.4% unemployment to 7.2%, then back again over 2012). Today’s data therefore may help the RBNZ to hold the line for now if they are so inclined, but it seems unlikely a central bank with such low inflation can avoid a further easing in this cycle.