Investors were pleasantly surprised by the latest job figures released by New Zealand, which showed a smaller increase in unemployment than anticipated. The unemployment rate rose from a revised 4.4% to 4.6% in the second quarter, thanks to a rise in both employment and the participation rate. Private wages also saw a marginal increase to 0.9% quarter-on-quarter, according to ING’s FX strategist Francesco Pesole.
NZD Leads G10 Currencies
The New Zealand Dollar (NZD) emerged as the top-performing G10 currency following the release of the positive job figures. Market expectations of a rate cut next week, which were previously high, have now been tempered, with only a 50% implied probability.
Analysts at ING believe that the Reserve Bank of New Zealand is likely to keep rates unchanged next week, as the current dovish sentiment in the NZD curve is more influenced by Fed rate expectations rather than local economic data. Despite this, there is still uncertainty surrounding next week’s meeting, with the market pricing it at a 50/50 chance.
Regardless of the outcome, ING remains optimistic about the NZD/USD pair, citing a favorable rate differential and improved risk sentiment as factors that could drive the pair higher, potentially breaching the 0.61 mark.
Analysis:
The positive job figures from New Zealand have had a significant impact on the currency markets, particularly boosting the value of the New Zealand Dollar. The lower-than-expected increase in unemployment has led investors to reconsider their expectations of a rate cut by the Reserve Bank of New Zealand. This, in turn, has resulted in a more positive outlook for the NZD/USD pair, with the potential for further gains in the near future.