NZD rebounds after wobbly start on soft labor data – BBH

New Zealand Dollar (NZD) recovered after soft Q3 labor data signaled weakening employment, with markets fully pricing in a November RBNZ rate cut, BBH FX analysts report.

RBNZ easing expected as labor market loses momentum

"NZD wobbled, then rebounded. New Zealand’s soft Q3 labor market data argues for additional RBNZ easing. Employment was 0% q/q in Q3 vs. -0.2% in Q2. Consensus expected 0.1% growth and the RBNZ had penciled in no growth."

"The unemployment rate rose in line with expectations by 0.1pts to 5.3% (highest since Q4 2016) while the participation rate dipped 0.2pts to 70.3%, suggesting the labor market is losing both breath (fewer people engaged) and strength (more unemployed people). Private wages matched consensus and RBNZ projection at 0.5% q/q in Q3 versus 0.6% in Q2."

"The next RBNZ policy decision/Monetary Policy Statement is on November 26 and markets more than fully price in a 25bps cut to 2.25%. The swaps market implies the policy rate to bottom between 2.00% and 2.25% over next six months, which would take it closer to the lower bound of the RBNZ’s estimated neutral range (1.60%-4.20%). Regardless, resilient global economic activity offsets the drag to NZD from expectations of looser RBNZ policy."