Bullish employment data boosts RBNZ interest rate hike expectations


Written by www.imperialFXonline.com

UNEMPLOYMENT FALLS SHARPLY TO 6%

New Zealand's jobless rate unexpectedly fell to 6% for the first quarter of 2010 from a downwardly-revised 7.1% (economists predicted the rate would stay the same at an over ten-year high of 7.3%), putting the unemployment rate back to the level seen in the second quarter of 2009, but still some way above the recent low of 3.5% seen at the end of 2007 before the global economic recession hit. Employment grew by 1 percent compared to the consensus forecast of 0.2 percent and the kiwi rallied after the release of the data, especially against the aussie dollar as the latter suffered from soft Australian retail sales.

RBNZ GOVERNOR ALAN BOLLARD AFFIRMS RATE HIKE IN JUNE

With money markets pricing in a probability of 75% for a rate hike on June 10 by the RBNZ, central bank governor Alan Bollard said in a speech before the data was released that the prediction was about right and the pace of the tightening of monetary policy would be determined by economic data, hence, the kiwi's rise from 0.7143 to 0.7278 against the U.S. dollar could be attributed to an almost-guaranteed 25 basis point rise next month, with a small risk of a 50 basis point increase (though Bollard said this was unlikely). However, the hawkish sentiment may change with a whole month of data releases (including retail sales, PPI and house prices) ahead of the central bank's meeting.

OUTLOOK FOR NZD/USD AND NZD/JPY

The kiwi may only rise strongly if the RBNZ looks like it will increase interest rates at a faster pace than anticipated, given that the RBA is likely to pause at 4.5% (which is still much higher than the current RBNZ rate of 2.5%) and the global economic outlook is affected by the debt contagion affecting Greece and possibly other countries in the eurozone. Nzd/usd will have to close above a chart resistance at 0.7442 to be able to challenge the 2009 high of 0.7635 while nzd/jpy may find its upside limited by a rising yen due to safe-haven buying of the safe-haven currency. A less-hawkish outlook (rate hike followed by a pause at the following meeting) would see the kiwi fall on long liquidation and keep the nzd/jpy below the 2009 top of 69.73.


Written by www.imperialFXonline.com