New Zealand Employment Preview: Upbeat jobs data to open RBNZ rate-hike door

• New Zealand’s jobless rate is likely to fall to 4.5% in Q2 2021.
• Improvement in the NZ labor market may lead to an RBNZ rate hike later this year.
• The kiwi remains at a critical juncture ahead of Wednesday’s jobs report.

With a stellar economic performance witnessed in the first quarter of 2021, the country’s sustained recovery from the coronavirus pandemic is likely to have boosted business confidence and hiring in the second quarter of 2021.

New Zealand’s employment will rise for the third straight quarter after slumping in mid-2020, the NZ Statistics will show this Wednesday.

NZ’s labor market recovery to pick up in Q2

The NZ Unemployment Rate is expected to drop further to 4.5% in Q2 2021 after unexpectedly falling to 4.7% in Q1. The economy is likely to see a 0.7% rise in employment in the reported period vs. +0.6% booked in Q1. The Participation Rate is foreseen at 70.6% in the second quarter of 2021 vs. Q1’s 70.4%.

Source: FXStreet

Solid jobs to seal in an RBNZ rate hike by end-2021

New Zealand’s labor market saw yet another upside surprise in the first quarter of 2021, reflecting the South Pacific Island nation’s success in eliminating the coronavirus that has given the economy a head-start.

Finance Minister Grant Robertson said that the vaccination program and re-opening of the border “provide confidence, particularly to those working in firms and sectors such as tourism that have felt the effects of the pandemic more than most.”

The NZ economy expanded 1.6% in the first quarter from the fourth, way beyond the market’s expectations while the inflation rate jumped to 2.7% in the second quarter, almost testing the upper band of the RBNZ’s 1-3% target range.

Upbeat fundamentals and the central bank’s efforts to curb the hot property market combined with higher inflation and improvement in the country’s labor market are likely to confirm the hawkish Reserve Bank of New Zealand (RBNZ) expectations. Economists at the country’s four largest banks expect the RBNZ to begin hiking rates in November.

Also, the RBNZ could take cues from the Reserve Bank of Australia (RBA), as the Australian central bank stuck to its tapering plan despite the headwinds posed by the recent covid outbreaks in the country. In comparison, New Zealand has managed to ward off escalating risks from the latest covid surge by quickly shutting down its border with Australia and other Asia-pac regions affected by the Delta covid variant flareups.

NZD/USD probable scenarios

NZD/USD is the strongest across the G10 fx space in the lead-up to the RBNZ showdown, thanks to Governor Adrian Orr’s proposal to tighten lending standards further to control the house prices in the Pacific nation.

The US dollar’s weakness amid downbeat US ISM Manufacturing PMI and pre-NFP caution also underpins the kiwi. At the time of writing, the kiwi is battling 0.7000, snapping a two-day downtrend, adding 0.50% on the day.

NZD/USD’s daily chart shows that the price is at a critical juncture and probably awaits the jobs report to determine the next direction. The kiwi is teasing a falling wedge breakout, challenging the offers at the descending trendline resistance at 0.7012. The 14-day Relative Strength Index (RSI) holds firmer above the midline, backing the bullish potential. However, an impending bear cross, with the 200-day SMA on the verge of piercing the 100-day SMA from below, warrants caution to NZD bulls.

On an upbeat NZ employment report, the kiwi buyers could ignore the bearish warning and break through the wedge hurdle to accelerate the recent upside towards the descending 50-day SMA 0.7058. Should the data disappoint markets a retracement towards the August 2 lows of 0.6952 cannot be ruled out. Further south, the 0.6900 round number could be the level to beat for the NZD bears.  

NZD/USD: Daily chart