5.7% jobless rate: Kiwi slips as New Zealand unemployment rises

0.1% decline in New Zealand third-quarter jobs contrasts with 0.4% growth forecast.
At its weakest since mid-October, NZD/USD trades at the session low.

New Zealand employment contracted 0.1% in the third quarter. That compares with an expected 0.4% increase and follows 0.5% growth in the second quarter. Unemployment climbed to 5.7%, above the 5.5% forecast. Trading just below 0.5600 at its session low, NZD/USD has surrendered almost the entire advance from its 14 October low just above 0.5550.

Quarterly growth in the Labour Cost Index eased to 0.4% from 0.7%, falling short of the 0.5% forecast. Participation dropped from 70.7% to 70.4%, meaning unemployment increased even as fewer people sought work. Having been expected to raise rates, the Reserve Bank of New Zealand (RBNZ) instead left its rate unchanged on 28 October. The employment decline and softer wage growth weaken the case for a hike.

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5-minute chart: NZD/USD

New Zealand Dollar: Frequently Asked Questions

New Zealand Dollar: Main Market Drivers

Economic conditions in New Zealand and domestic central bank policy largely determine the value of the New Zealand Dollar (NZD), commonly called the Kiwi, a familiar currency among investors. Several country-specific factors also influence its exchange rate. As China is New Zealand’s largest trading partner, Chinese economic performance tends to affect the Kiwi. Negative developments in China are likely to reduce demand for New Zealand exports, weighing on the domestic economy and, in turn, its currency. Dairy prices are another important driver, with the dairy industry accounting for New Zealand’s main export. Higher prices lift export earnings, supporting both the economy and NZD.

RBNZ Policy: Implications for the New Zealand Dollar

A medium-term inflation range of 1% to 3%, with an emphasis on the 2% midpoint, is the Reserve Bank of New Zealand’s (RBNZ) target. The bank adjusts interest rates to achieve and maintain that objective. If inflation becomes too high, it raises rates to restrain economic activity. Higher rates also lift bond yields, making investment in New Zealand more attractive and supporting NZD. Rate reductions, by contrast, generally weaken the currency. Another key influence on NZD/USD is the interest rate differential: the gap between New Zealand rates and those set by the US Federal Reserve, including expectations for that gap.

Economic Data: Effects on New Zealand Dollar Valuations

New Zealand’s macroeconomic releases provide essential evidence of economic health and can affect the valuation of the New Zealand Dollar (NZD). Robust growth, low unemployment and strong confidence signal an economy that supports NZD. Rapid economic expansion draws foreign investment. If accompanied by elevated inflation, it may also prompt the Reserve Bank of New Zealand to raise interest rates. Weak economic figures, on the other hand, are likely to put downward pressure on NZD.

Risk Sentiment: A Driver of New Zealand Dollar Moves

When investors see limited risks across markets and take an optimistic view of growth, the New Zealand Dollar (NZD) generally appreciates. These risk-on conditions tend to improve the outlook for commodities and so-called ‘commodity currencies’, including the Kiwi. During market disruption or economic uncertainty, the reverse typically occurs: investors sell riskier assets in favour of more stable safe havens, leaving NZD weaker.