New Zealand dollar swings continue, CPI looms

The New Zealand dollar is showing strong volatility for a second successive day. Earlier, NZD/USD rose as much as 0.74% to 0.5980 but has pared most of these gains. In the North American session, NZD/USD is trading at 0.5947, up 0.15%.

New Zealand unemployment expected to jump

New Zealand’s labour market is showing cracks due to high interest rates and the employment picture is expected to darken after the second quarter employment report is released early on Wednesday. The unemployment rate is expected to jump to 4.7%, compared to 4.3% in the first quarter, which was the highest reading since Q1 of 2021. Job growth is expected to decline by 0.2% for a second straight quarter. As well, labor costs are expected to ease to 3.5% y/y in the second quarter, down from 3.8% in Q1.

A weak labor market would support the case for a rate cut from the Reserve Bank of New Zealand at next week’s meeting. The central bank has kept rates at 14-year high of 5.5% for nine straight meetings and could press the rate-cut trigger at the meeting as inflation has fell from 4% to 3.3% in the second quarter, its lowest level in three years.

The Reserve Bank will also be keeping a close eye on inflation expectations for the second quarter, which will be released early Thursday. Inflation expectations has been steadily falling since late 2023 and dropped to 2.33% in May. Another decline would add to the pressure on the central bank to lower rates.

The soft employment report out of the US on Friday triggered a global stock market meltdown on Monday. The US started the week on the right foot as the ISM Services PMI climbed back into expansion territory with a reading of 51.4, up from 48.4 in June and above the market estimate of 51.1. US stock markets have responded with strong gains on Tuesday.
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NZD/USD Technical

• NZD/USD tested support at 0.5920 earlier. Below, there is support at 0.5870
• There is resistance at 0.5991 and 0.6041

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