New Zealand dollar higher despite pessimistic RBNZ

The New Zealand dollar has moved higher on Tuesday. In the North American session, NZD/USD is trading at 0.5998, up 0.46% on the day.

RBNZ says economy in weak shape

The Reserve Bank of New Zealand released its semi-annual Financial Stability Report and the financial system received a favorable grade. That was it for the good news, as the report pointed to weak economic conditions that were hampering households and businesses.

The report noted that rising unemployment was causing “acute” financial difficulties for some households and that businesses had been impacted by weak demand and high cost pressures. This had caused households to reduce spending and businesses to freeze investing. Although inflation and interest rates had fallen, “significant further weakening in the economy remains a risk.”

The negative tone of the report could mean that the central bank will remain aggressive in its rate-cutting cycle. The RBNZ slashed rates by 50 basis points in October, lowering the cash rate to 4.75%. The final meeting of the year is on Nov. 27 and another 50-bp is likely, with a supersize 75-bp cut an outside possibility.

The RBNZ will be keeping a close eye on Wednesday’s third-quarter employment report. Employment change is expected to decline by 0.4% after a 0.4% gain in the second quarter. As well, the unemployment rate is projected to jump to 5%, from 4.6% in the second quarter. With inflation easing, the RBNZ is keeping a closer eye on the labor market and if the deterioration in employment is worse than expected in Q3, the calls for a 75-bp cut at the next meeting will get louder.

NZD/USD Technical

• NZD/USD has pushed above resistance at 0.5987 and is testing resistance at 0.6002
  There is support at 0.5957 and 0.5942

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