New Zealand released jobs figures overnight, and the results were not as grim as consensus expected. Unemployment rose less than projected from a revised 4.4% to 4.6% in 2Q, thanks to a surprising rise in both employment and the participation rate. Private wages also rose marginally to 0.9% quarter-on-quarter, ING’s FX strategist Francesco Pesole notes.

NZD is the best-performing G10 currency

“The New Zealand Dollar (NZD) is the best-performing G10 currency this morning on the back of those figures, as markets trimmed bets on a rate cut next week, which was almost fully priced in and has a 50% implied probability.”

“We are now inclined to call for a hold by the Reserve Bank of New Zealand next week. The dovish repricing in the NZD curve is more a consequence of Fed rate expectations as the RBNZ dovish tilt and inflation/jobs data do not justify the 84bp of easing priced in by year-end. We suspect the RBNZ may want to wait for the Fed to move first, and if anything deliver a 50bp cut at the October meeting.”

“That said, next week looks close to a 50/50 call, and we think the meeting is accurately priced by the market. Either way, we remain bullish on NZD/USD on the back of a significantly improved rate differential and stabilisation in risk sentiment which should unlock upside into 0.61+ in the pair after the recent break above 0.60.”