NZ dollar jumps on solid jobs report

NZD/USD is sharply higher today. In the European session, the New Zealand dollar is trading at 0.5883, up 0.71%.

New Zealand employment data shines

New Zealand posted a strong employment report for the third quarter, indicative of a robust labour market. Employment rose 1.3% QoQ, up from 0.0% in Q2 and above the consensus of 0.5%. The unemployment rate remained at 3.3%, just shy of the consensus of 3.2%. As wage inflation remained unchanged at 3.8% YoY, above the estimate of 3.4%.

The labour market continues to suffer from staff shortages and capacity limits, which has contributed to spiralling inflation. This report will add to the pressure on the Reserve Bank of New  Zealand to continue to raise rates. The RBNZ has raised the cash rate to 3.50%, its highest since 2015. Still, the steep tightening has failed to curb inflation, and the central bank is likely to respond with a 75-basis point hike later this month, after five straight hikes of 50 basis points.

Inflation in Q3 came in at 7.2%, and the RBNZ finds itself much further behind inflation than it had anticipated. The hot inflation report has raised expectations that the central bank will raise rates to a peak of  5.0% or even higher in early 2023. This leaves the RBNZ with little choice but to continue with oversize rate hikes, despite the spectre that further oversize rate hikes will tip the economy into a recession.

The spotlight is on the Federal Reserve, which winds up its 2-day policy meeting later today. This would bring the benchmark rate to 4.0%. The question on the minds of investors is what happens next? The final meeting of the year is on December 14^th and hopes that the Fed will downshift their tightening pace at that meeting have faded, as inflation has been stickier than the Fed expected. The markets will be listening closely to Fed Chair Powell’s comments today, hopeful for some insights into what the Fed has planned in the next few months.

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NZD/USD Technical

• There is resistance at 0.5906 and 0.5999
• There is support at 0.5782 and 0.5689

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