NZ Dollar at the Mercy of the Fed After Jobs Data Rally Fizzles


  • New Zealand Dollar briefly surges as Q1 data shows sharp wages increase
  • Gains unable to hold as markets digest participation drop, slower job growth
  • Spotlight on the FOMC rate decision as the RBNZ continues to be sidelined

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The New Zealand Dollar briefly popped higher against its US counterpart after first-quarter labor market data crossed the wires. The move might have reflected a dramatic jump in wage inflation. Average hourly earnings jumped 1.1 percent from the prior quarter, topping bets calling for a meager 0.5 percent increase.

That might have inspired speculation that overall price growth will be pressured higher, bringing forward the likely timing of an RBNZ interest rate hike. The range of surprises on offer elsewhere in the data set proved less flattering however and the Kiwi slumped back in disappointment.

The unemployment rate fell to a near-decade low of 4.4 percent as economists envisioned but this came alongside an unexpected drop in the participation rate, suggesting it was an exodus from the labor force rather than a pickup in hiring that at work. Indeed, the on-year pace of job creation slowed more than projected.

As it stands, New Zealand Bank Bill futures imply a rate hike is coming no sooner than the middle of next year. OIS-implied measures go a step further, showing the priced-in probability of tightening this year has been steadily diminishing since early November.

In the meantime, the currency is likely to take its cues from US monetary policy. The Kiwi has shed over 5 percent in a mere two weeks as steepening Fed rate bets paved the way for the US Dollar to dislodge it as the highest-yielding in the G10 FX space.

Further still, the upward pressure exerted by Fed stimulus withdrawal on global borrowing costs has undercut scope for the RBNZ to follow. A slumping rates path implied in those same Bank Bill futures shows markets see the local central bank as content with let the FOMC do the heavy lifting, at least for now.


— Written by Ilya Spivak, Currency Strategist for

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