The New Zealand Dollar (NZD) outperformed and New Zealand bonds underperformed on better-than-expected Q2 New Zealand labor market data, BBH FX analysts note. 

Q2 labor market data pushed NZD higher

“Employment unexpectedly increased 0.4% q/q (consensus: -0.2%, RBNZ forecast: +0.1%) vs. -0.3% in Q1. The unemployment rate rose two ticks to 4.6% (consensus: 4.7%, RBNZ forecast: 4.6%) while the participation rate increased a tick to 71.7% (consensus: 71.3%, RBNZ forecast: 71.5%). Finally, private wages grew 0.9% q/q (consensus: 0.8%, RBNZ forecast: 0.9%) vs. 0.8% in Q1.”

“The swaps market slashed the probability of a RBNZ rate cut on August 14 to 52% from 90% earlier this week. Our base case remains for the RBNZ to start easing in October with a 25bps cut. Market pricing is more aggressive and implies almost 50bps of cuts by October.”

“We doubt the RBNZ will be as dovish as money market expects because New Zealand non-tradeable CPI inflation remains sticky and business confidence pick-up. As such, NZD/USD has room to edge higher if global financial market risk appetite does not worsen.”