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Annette Beacher, chief Asia-Pacific macro strategist at TD Securities, notes that the New Zealand’s Q1 unemployment rate eased from 4.3% to 4.2%, continuing the decline from 5.2% in late 2016 and 6.7% in late 2012.

Key Quotes

“Employment fell -0.2%/q (mkt +0.5%) but masked a robust shift towards full-time (+17k) and away from part-time (-18k). The participation rate slid to a three-year low of 70.4%, but a similar dip two years ago was followed by a record high 71%.

“Private wages rose by a feeble +0.3%/q (mkt +0.5%) although AHE surged by +1.1%/q, reflecting the full-time employment bump. Ongoing business complaints about lack of suitable labour/higher legislated wage costs and outsized award payments are still not being reflected in the broader measure. StatsNZ said “We are likely to see further increases to wages as ongoing pay disputes are settled and the minimum wage increase flows through”.

“The markets reacted to the declines in employment and the participation rate: NZD down 25pips to $US0.665, 2yr swaps -5bp to 1.63%. OIS increased the odds of a May cut to ~65%, but we still lean towards a dovish pause: on hold at 1.75% and revise down the OCR forward guidance.”