New Zealand Dollar: Labor slack tempers strong jobs data – BBH
Brown Brothers Harriman’s (BBH) Elias Haddad notes the New Zealand Dollar and local yields slumped after strong Q2 employment and wage gains were offset by rising labor supply and higher unemployment.
Brown Brothers Harriman’s Elias Haddad notes that the New Zealand Dollar and local yields dipped after robust Q2 employment and wage growth were tempered by a widening labor supply and higher unemployment. Despite this, Haddad believes the NZD could still climb, buoyed by inflation above the target, a generally positive growth outlook, and expectations of further tightening from the Reserve Bank of New Zealand.
New Zealand's solid Q2 job and wage figures mask an ongoing labor market slack. Employment rose 0.5% quarter-over-quarter, much higher than the 0.1% seen in Q1 and the Reserve Bank's prediction, while private regular wages increased 0.7% quarter-over-quarter, exceeding both consensus and the RBNZ’s forecast. However, the surge in hiring was more than countered by the rise in labor supply (participation rate climbed 0.2 percentage points to 70.7%), pushing unemployment up and suggesting an oversupply of labor.
The unemployment rate went up 0.2 percentage points to 5.6% (consensus and RBNZ: 5.4%), the highest since Q3 2015, and the underutilization rate surged 0.9 percentage points to 13.8%, the highest since December 2013. Despite these trends, the NZD still has potential to inch higher against most major currencies. Inflation above the target, a more favorable domestic growth outlook, and the RBNZ’s policy rate being near the lower end of its neutral range (2.20%-4.10%) suggest additional RBNZ rate hikes.
The swaps curve suggests nearly 100 basis points of cumulative tightening over the next twelve months to 3.50%.
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