New Zealand Dollar Pauses After Mixed Jobs Data

The New Zealand dollar had been showing plenty of volatility over the past week but was steady on Wednesday. After plunging 2.56% last week, the currency rebounded, recovering about half of those losses this week. NZD/USD has taken a pause on Wednesday after New Zealand posted mixed employment data for Q4.

New Zealand’s unemployment rate fell from 3.3% to 3.2%, better than the forecast of 3.4%. However, job creation was minimal with a gain of 0.1%, shy of the consensus of 0.4%. The labor cost index rose slightly, from 2.4% to 2.6%, missing the estimate of 2.9% age growth remained way below inflation, which clocked in at 5.9% in the fourth quarter?

Wage growth lagging inflation

The wage growth release could have a significant impact on monetary policy. The RBNZ was expected to raise rates by 0.25% at the Feb. 23 meeting, which would mark back-to-back rate rises. With wages lagging inflation by a wide margin, the RBNZ may decide to slow the pace of rate increases in 2022, even if inflation remained high.

This stance was based on the premise that high inflation was transient and will ease if wage growth was not strong. The central bank was expected to normalize policy with a series of rate hikes which could extend into 2023.

The New Zealand dollar shot up 0.96% on Tuesday, buoyed by strong trade numbers. Exports were up and imports decreased, and as a result, New Zealand’s trade deficit fell from over NZD 1.06 billion to NZD 477 million. This was another indication that the recovery was gathering steam, even though the country had essentially closed its borders to the outside world.

The New Zealand currency had been under pressure, with investors pricing in five rate hikes from the Federal Reserve over the course of the year. There were projections for as many as seven hikes this year, and any guidance from the Fed, which has not been very clear on how many hikes to expect, could shake up the currency markets.

NZD/USD Daily Chart

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