The kiwi made a big breakout to new multi-year highs, riding on the weakness of the greenback. As this came before the release of the jobs report that carried high expectations, a downfall was expected, as we wrote here.
NZD/USD did not even wait for the jobs report. RBNZ governor Wheeler started the reversal with his strong words. From there, it was all downhill and the pair trades close to support.
“What comes up must go down” best describes the chart:
NZD Intervention
The governor of the Reserve Bank of New Zealand not only complained about the high exchange rate of the kiwi, but also made an explicit statement about intervening. He said that if NZD stays high in face of worsening fundamentals, the RBNZ “could sell it”.
If this wasn’t clear enough, Graeme Wheeler also made it clear that a higher value of the currency will be a factor in the next decisions, giving it a place alongside economic data.
So the RBNZ gives a lot of weight to the currency and will act through regular monetary policy tools as well as direct intervention to weaken it.
Q1 employment in New Zealand
Wheeler “stole the show” from the jobs figures, but they also contributed to the fall, even if they were OK. Employment rose in New Zealand by 0.9% in Q1, better than 0.7% expected but lower than 1% in Q4.
The unemployment rate disappointed by remaining unchanged at 6%, falling short of expectations to fall to 5.8%. However, this comes on top of a rise in the participation rate to no less than 69.3%. In the US, the participation rate is only 62.8%.
What was really more worrying was the Labor Cost Index: it rose by only 0.3% instead of 0.5% expected and 0.6% last time. Y/y the rise is only 1.6% vs. 1.8% exp. and 1.7% before. This shows that wage inflation is not really present.
NZD/USD moves
NZD/USD climbed above resistance at 0.8670 and then shot higher above the previous cycle high of 0.8745. It peaked at 0.8780, only 62 pips away from the multi-decade high of 0.8842.
The one-two punch sent it down to 0.8690 at the time of writing. For more levels, events and analysis, see the NZDUSD prediction.
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