New Zealand Employment Preview: Participation rate holds the key as jobless rate seen steady

• New Zealand’s jobless rate is likely to remain unchanged at 4.9% in Q1 2021.
• All eyes remain on the participation rate for RBNZ’s likely policy action.  
• Disappointing figures could exacerbate the pain in the kiwi, with 0.7100 at risk.

New Zealand’s Deputy Prime Minister and Finance Minister Grant Robertson said Tuesday that he “expects latest unemployment rate data this week to "bounce around a bit". However, the South Pacific Island nation’s labor market recovery is likely to see little improvement in the first quarter of 2021.

New Zealand’s unemployment rate is expected to hold steady in the March quarter after surprising markets to the upside in the final quarter of 2020, the NZ Statistics will show this Wednesday.

NZ labor market on a modest recovery path

The NZ Unemployment Rate is expected to hold steady at 4.9% in Q1 2021 after falling sharply from 5.3% seen in Q3. The economy witnessed a 0.2% jobs growth in the reported period vs. +0.6% seen in Q4. The Participation Rate is likely to tick a tad higher at 70.3% in the first quarter of 2021 vs. Q4’s 70.2%.

 

Focus on the participation rate and RBNZ policy action

 

After a big surprise booked in the December quarter, a consolidation in New Zealand’s labor market recovery is unlikely to throw the markets off-guard.

However, the focus will remain on the participation rate, which is the percentage of the population actively looking for work, as the pace of hiring is expected to slow amid a steady unemployment rate.

If the participation rate doesn’t rise as expected, it would be reflective of higher unemployment in the economy. Meanwhile, a higher participation rate and strong job growth could eventually drive up wage inflation over the coming quarters.  

The main question is how would the employment indicators alter the Reserve Bank of New Zealand’s (RBNZ) steady course on monetary policy. In its February economic projections, the central bank had expected a slight rise in unemployment to 5%.

Meanwhile, the RBNZ policymaker Peter Harris said last month that the central bank is still not meeting its employment objective, suggesting that there is no need to remove monetary stimulus at the moment. He further emphasized that unemployment remains 'relatively high' while dismissing signs of wage inflation.

NZD/USD probable scenarios

Therefore, any downside surprise to the employment indicators could fan expectations of additional easing by the RBNZ, which could exacerbate the pain in the kiwi.

Ahead of the jobs data release, the central bank is likely to release its Financial Stability Report (FSR), which will also have a significant impact on the kiwi. Additionally, the risk tone and the US dollar price action could also affect NZD/USD’s reaction to the Q1 employment report.

If the employment report betters expectations, then it could offer a much-needed reprieve to the NZD bulls. At the time of writing, the kiwi is refreshing 11-day lows near 0.7130, shedding 0.83% on a daily basis.

In the four-hourly technical setup, the price is fast approaching horizontal trendline support at 0.7119, as the sell-off gathered pace on a breach of the bullish 100-simple moving average (SMA) at 0.7173. The Relative Strength Index (RSI) remains bearish, suggesting more room to the downside should the data disappoint. The critical 200-SMA at 0.7101 could be put at risk, opening floors towards 0.7050 psychological level. A rebound towards the 100-DMA support now resistance cannot be ruled out on a positive surprise, with 0.7200 as the next upside target.

NZD/USD: Four-hour chart