NAS: Shockingly Weak New Zealand Labor Data to Weigh on Kiwi
New Zealand labor data for Q2 printed exceptionally weaker than expected with employment change declining to -0.3% from 0.5% forecast while the unemployment rate increased to 6.8% from 6.3% the quarter prior. The news came as a sharp surprise to the market given the fact that employment components of both Services and Manufacturing PMI rose and Manpower employment survey all showed an improvement in labor conditions.
Nevertheless, today\'s data clearly suggests that labor demand in the New Zealand economy remains lackluster and greatly reduces any chance of additional rate hikes from the RBNZ for at least the next several months. The futures markets lowered the chances of a September rate hike to 64% from 74% in the aftermath of the release, but we believe that the odds are actually much lower given the generally dovish tone of Governor Bollard\'s statement last month and today\'s sharply weaker employment numbers.
The kiwi tumbled more than ¾ of a penny to a low of .7275 on the aftermath of the report and remained moribund at those levels. The unit is likely to underperform for the rest of the week especially against the euro and the yen as traders temper their expectations of New Zealand economic growth going into the second half of 2010.
