NZD higher ahead of employment report

NZD/USD is showing some strength today. In the North American session, the New Zealand dollar is trading at 0.5838, up 0.41%. Earlier today, NZD/USD rose to 0.5902, its highest level since September 21st.

New Zealand employment expected to improve

New Zealand releases its Q3 employment report on Wednesday. The data is expected to reaffirm that the labour market remains robust. Employment Change is expected to rise to 0.5% (0.0% prior) and the unemployment rate is forecast to tick lower to 3.2% (3.3% prior).

The Reserve Bank of New Zealand is unlikely to be pleased if employment numbers improved in Q3, as it points to inflation remaining high. Moreover, business sentiment is soft, with businesses concerned about rising labor costs and many of them planning to raise their prices. Inflation in Q3 came in at 7.2%, and the RBNZ finds itself much further behind inflation than it had anticipated. The cash rate is currently at 3.5% and the hot inflation report has analysts projecting that the cash rate won’t peak until 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 high interest rates will tip the economy into a recession.

The Federal Reserve will announce its rate setting on Wednesday, with CME’s Fed Watch pegging the likelihood of a 75 bp hike at 86%. This would bring the benchmark rate to 4.0%. The question on the minds of investors is what happens next? The last meeting of the year is on December 14^th and the Fed is expected to begin to ease its foot off the rate pedal, likely in the form of a 50-bp hike. This will depend on economic data, especially inflation. If inflation isn’t showing any signs of peaking, the Fed will have to consider another 75 bp hike.

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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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