Kiwi Extends Advance as New Zealand’s Employment Growth Quickens

New Zealand’s dollar added to its biggest gain in three weeks after a government report showed the nation’s jobs increased more than economists forecast.

  • The kiwi dollar appreciated versus all but one of its 16 major counterparts as faster jobs growth could add upward pressure on wages and price inflation in coming quarters.
  • The euro held its steepest advance against the dollar in three weeks amid speculation the European Central Bank won’t announce additional stimulus after policy makers meet tomorrow.

“There is a Goldilocks economy story going on in New Zealand,” Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “We had a lot of employment growth but not much wage price inflation. Things are going quite well in New Zealand and that’s why we’ve seen the kiwi dollar up.”

  • The New Zealand dollar led gainers versus the U.S. currency, rising 0.2 percent to 78.23 U.S. cents at 9:26 a.m. in Tokyo after climbing 1.2 percent yesterday. Australia’s dollar was little changed at 87.37 U.S. cents.
  • The euro was also little changed at $1.2551 after climbing 0.5 percent to $1.2546 yesterday. It traded at 142.57 yen from 142.53.
  • Japan’s currency held gains at 113.59 per dollar after strengthening 0.4 percent in New York.
  • The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, was at 1,085.01 from 1,085.78.

Jobs Growth

Employment increased 0.8 percent, or by 18,000 jobs, from the second quarter when it grew 0.4 percent, Statistics New Zealand said in a report today in Wellington. The median forecast in a Bloomberg News survey of 11 economists was for a 0.6 percent gain. The jobless rate fellto 5.4 percent, the lowest since the first quarter of 2009.

The kiwi also gained after the price of milk powder, New Zealand’s biggest export, rose$2,522 a metric ton from $2,503 at a previous auction, according to GlobalDairyTrade website.

“We have seen the dairy prices stabilize in the last two auctions,” Capurso said. “That’s a good sign for the New Zealand dollar that prices are no longer falling.”

The euro appreciated versus 13 of its 16 major counterparts before the ECB meets to deliberate on monetary policy amid increasing pressure on the central bank to consider additional stimulus.

“I doubt the ECB will start quantitative easing just yet,” said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. in New York. “The market is in wait and see mode ahead of U.S. jobs data and ECB meeting.”

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Summary: We do see that New Zealand is doing quite well with an improving labour market and stabilizing dairy price, but the bottom line is that RBNZ is still going through a period of assessment for the next interest rate hike which will take quite a long time. RBNZ is most likely not willing to raise interest rate any further at least till it sees its currency weaken further as it is still at a historical high level.

So in comparison to the dollar where the Fed has just ended its asset purchase program and moving closer to an interest rate hike, the kiwi is still most likely to weaken further against the dollar.