New Zealand’s Q2 employment growth and wage gains were overshadowed by higher unemployment and labor slack, weighing on the currency.
The New Zealand Dollar and local bond yields declined after Q2 employment rose 0.5% quarter-on-quarter, exceeding consensus and RBNZ forecasts of 0.1%. Private wages also climbed 0.7%, above expectations of 0.6%.
However, a 0.2 percentage point increase in the unemployment rate to 5.6%—the highest since Q3 2015—alongside a rising participation rate of 70.7%, signaled persistent labor market slack. The underutilization rate hit 13.8%, its highest since December 2013.
Despite the mixed data, analysts expect the NZD to recover, citing above-target inflation, a favorable growth outlook, and expectations of further RBNZ tightening. Swaps markets price in nearly 100bps of rate hikes over the next year.