The steady drift lower in the kiwi since the release suggests traders are pricing out some of the chance of a December hike rather than reacting to a one-off headline. The fall in two-year swaps supports that reading. With the RBA still leaning hawkish, the widening policy gap leaves NZD/AUD vulnerable to further weakness. The election is the next risk: a Labour-led win would bring the prospect of a dual mandate, which markets would likely read as tilting the RBNZ toward easier policy over time. Inflation expectations surveys later this month are the next test of whether the RBNZ’s hawks can still make their case.
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Earlier:
NZ Q3 Unemployment rate 5.7% (expected 5.5%, prior 5.6%)
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New Zealand’s jobs data missed on every measure, handing the RBNZ a reason to stay on hold and the opposition a fresh line of attack days before the vote.
Summary:
Unemployment rose to 5.7% in Q3, the highest since 2015, against expectations of 5.5% from both economists and the RBNZ
Employment fell 0.1% and participation slipped to 70.4%
Private sector wage growth slowed to 0.4% in the quarter and 2.0% on the year
The kiwi dipped, steadied around $0.56 and has drifted lower since, while two-year swaps fell about 6bp
Labour called the data a verdict on the government, while the finance minister urged voters to stick with its plan
Labour has pledged to restore a dual mandate for the RBNZ if elected on Saturday
New Zealand’s unemployment rate climbed to an 11-year high in the third quarter, data released earlier on Wednesday showed. The New Zealand dollar has traded lower since, as markets weigh the outlook for interest rates and Saturday’s general election.
To recap, the jobless rate rose to 5.7% in the three months to September, the highest since 2015, according to Statistics New Zealand. Economists polled by Reuters had expected 5.5%, as had the Reserve Bank of New Zealand. Employment fell 0.1% from the previous quarter, against forecasts of a 0.4% rise, and the participation rate slipped to 70.4%, below the 70.7% expected.
Wage growth also slowed. Private sector labour costs excluding overtime rose 0.4% in the quarter, down from 0.7% in the previous three months, taking annual growth to 2.0% from 2.1%.
The figures land in the final days of a tight election campaign, Reuters reported, with an Ipsos poll this week showing inflation and the cost of living as voters’ top concern. Labour’s finance spokesperson, Barbara Edmonds, said the data was a damning judgement on Prime Minister Christopher Luxon’s handling of the economy. Finance Minister Nicola Willis said the numbers reflected the effect of uncertainty and showed the need to stay with the government’s plan, which she said was rebuilding the economy.
Markets read the data as reducing pressure on the central bank to resume rate rises. The kiwi dipped on the release before steadying around $0.56, Reuters reported, and has since drifted lower. Two-year swap rates fell about 6 basis points to around 3.78%.
The RBNZ surprised markets last week by holding its official cash rate at 2.75%. It said it wanted time to judge the effect of two earlier hikes, while signalling further increases were still likely. Economists at one local bank said the weakening labour market made that decision look increasingly justified, and suggested further hikes may not be needed if the trend continued.
The election adds a further policy question. Labour has pledged to return the RBNZ to a dual mandate covering both price stability and maximum sustainable employment, rather than its current single focus on inflation.
This article was written by Eamonn Sheridan at investinglive.com.
