So the global backdrop remains highly supportive of the ‘risk-sensitive’ NZD. However, the NZD lost a little support from the domestic backdrop last week. The Q2 HLFS labor market report was disappointing on all fronts. The unemployment rate increased to +6.8%, confounding expectations for a fall. Friday’s July spending figures were hardly inspiring either, falling -0.6% MoM. “Last week’s data disappointments may be enough to further delay the RBNZ rate hikes we expect – we are now assessing the case for shifting our rate hike call from March to June.” writes Jones.
In the interim, markets have already moved and local swap rates fell last week as markets again moved to price a small chance of an RBNZ rate cut in coming months. The associated reduction in the NZD’s yield advantage weighed on the NZD last week. NZ-US 3-year swap differentials dipped from 240bps to 225bps.