FXstreet.com (Barcelona) - A 'jaw-dropping' job report was published earlier this morning in New Zealand, with the reading missing estimates by a whopping 0.6 bp deviation on the jobless rate - from 6.7% to 7.3% - while the jobs growth negative deviation was even worse, falling from 0.3% to -0.4%. NZD/USD had a -85 pips drop on the report, that speaks by itself.

The latest labour print is composed of data collected in July, August and September vs Q2 months, which suggests that rather than being a one-off rare month, it carries more weigh as the measure to assess conditions is 3-months. Are we witnessing a change in NZ labour market dynamics possibly leading to a jobs trend shift? NZ jobless rate has risen to a 13-year high.

From the NZ Herald:

Auckland's jobless rate rose 1.3% to 8.6%, with the number of people employed in New Zealand's biggest city at 691,200, the fewest since June last year. Full-time employment shrank 0.8 per cent to 1.7 million while part-timers rose 1.4% to 519,000. The number of jobless people, which includes people who might not be actively seeking work, rose to 294,900 vs 271,200, while underemployment, which counts people who are part-time but want to work more hours, rose to 113,300 vs 109,500.

What do this mean for the NZ Dollar?

The New Zealand Dollar has been sold-off in earnest across the board, printing large bearish outside days against its major competitors. This type of formation tends to be a good indicator of reversal signals when coming about at the right levels. EUR/NZD for example has formed a bullish engulfing bar at a key support.

Since speculation over a possible rate cut by the RBNZ will inevitable be talked up in the next few days, and knowing that markets act as discounting mechanisms on expectations, the change of perspectives about the RBNZ stance on rates may sparkle further headwinds for the Kiwi.

Yesterday, RBNZ Governor Graeme Wheeler told a parliament’s finance select committee that rate cuts are unlikely to help much on sustaining the NZD at much lower levels. “It’s hard at this point to see any factor that would lead to a major depreciation in the exchange rate in the short term” he said, cited by Bloomberg.

It is hard to challenge the NZD can lose sustainably over a mid/long term period, mainly on the demerits from the rest of G10 currencies, but it looks like in the short term, there is a few kickers not to be ignored.

Firstly, the Governor is considering the option of reducing rates, which combined to the fact that the NZD has been recently enjoying strong buying interest on temporary confidence the RBNZ will stand pat for the time being, anticipates possible trouble ahead for the Kiwi interest, as traders may start to get busy pricing in the odds of RBNZ following the RBA easing campaign.