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The unemployment rate fell from 5.3% to 4.9% in the December quarter, against expectations of an increase. According to economists at Capital Economics, the fall in the unemployment rate to 4.9% in New Zealand means the rate is already past the peak and expect the labour market to continue to tighten throughout 2021.

As a result, NZD/USD jumped from 0.7167 to 0.7196 following the news. The kiwi was last seen trading above the 0.7200-level, near the 0.7226 daily high.

Key quotes

“The 0.6% q/q rise in employment was above the Bloomberg median forecast of a 0.1% rise and well above the RBNZ’s forecast of a 0.1% decline in employment. What’s more, the rise in employment was more than enough to offset the 0.1ppt rise in the participation rate which means the unemployment rate fell to 4.9% in Q4 from 5.3% in Q3.”

“The strength in employment growth came despite the ending of the government’s generous wage subsidy for the last of the eligible employees, which should end any concerns that the programme was keeping the unemployment rate artificially low. And with the New Zealand economy already back and pre-virus levels and likely to continue growing, we expect employment to continue to rise from here.”

“We think the unemployment rate will fall to near 4% by the end of 2022. That’s much more optimistic than the RBNZ’s forecast that the unemployment rate will rise to a peak of 6.4% in Q2 and still be 5.5% by the end of 2022. Our view that the labour market is set to tighten much faster than the RBNZ anticipates is one reason why we expect the Bank to begin raising rates by the end of next year.”