New Zealand jobs report preview: Favorable conditions for NZD/USD to move up

New Zealand's quarterly jobs report is set to shake the kiwi.
Expectations are balanced, allowing for a straightforward reaction.
The current truce in the trade wars creates an upside bias for the NZD/USD.

Yohay Elam FXStreet

The New Zealand jobs report is published on Tuesday, July 31st, at 22:45 GMT. New Zealand is unique among developed economies to release labor market data only once per quarter. Employment data is always of high importance, and the magnitude of the reaction is greater when it becomes scarce.

The jobs report became even more significant due to the change in the mandate of the Reserve Bank of New Zealand. The central bank's role has been broadened to include employment, making the publication vital for interest rates.

New Zealand is doing well

The economy of New Zealand or Aotearoa is doing quite well, and the labor market is no exception. According to the data from the first quarter of 2018, the unemployment rate stood at an enviable level of 4.4%. It is important to note that this low jobless rate is achieved with a whopping participation rate of 70.8%. In comparison, labor force participation in the US is below 63%.

The nation then reported a rise of 0.6% in employment, a healthy growth rate. On the other hand, the LAbor Cost Index increased by 0.3% QoQ and 1.9%, modest increases. The figure provides a look into wage inflation. A higher cost implies inflationary pressures in the pipeline.

Apart from jobs, the economy is enjoying high demand for its dairy products from Asia and burgeoning tourism industry.

Expectations and potential reactions

Expectations for the second quarter can be described as "middle of the road." The jobless rate is projected to remain unchanged at 4.4%. The forecast for the change in employment is more modest: only 0.4% QoQ, but the Labor Cost Index is predicted to enjoy a faster pace of increases: 0.6% QoQ and 2.1% YoY.

The employment change figure tends to have the most significant impact. A substantial beat or miss will dominate the reaction in the NZD/USD and outweigh the other numbers. In case the figure comes out within expectations, the unemployment rate will likely have its say. This is due to the new mandate the of the RBNZ.

Last but not least, the change in the labor cost index also has a growing impact. As in other developed economies, jobs are aplenty, but salaries are not going anywhere fast. Higher wages translate to higher price pressures down the road.

NZD/USD positioning

The New Zealand Dollar approaches the event with the wind in its back. The kiwi is a risk currency that rallies when the global mood is positive and slides when the mood sours. New Zealand is also a trading nation. The domination of trade wars in the headlines has weighed on the NZD.

However, things have improved now. The US and the European Union have agreed to negotiate lower tariffs and to refrain from new duties during the talks. Also, talks between the US, Mexico, and Canada on a modern version of the North American Free Trade agreement are going well.

While none of this is directly related to New Zealand, the upbeat mood in stock markets has lifted the kiwi from the bottom. Assuming no adverse events occur until the employment report is out, an OK outcome could be good enough for the NZD/USD to move up.

More: NZD/USD shorts are stretched, clean out to 0.69 handle could be on the cards

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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