NZD/USD trends lower after Trump victory and weak NZ employment data

• NZD/USD declines after Trump wins the US presidential election, boosting USD. 
• The Kiwi Dollar is further hampered by weak NZ labor market data showing a rise in joblessness. 
• NZD/USD could fall further if the policy trajectories of the two central banks diverge.

NZD/USD trades down by over three quarters of a percent in the 0.5940s as the US Dollar (USD) strengthens across the board following the announcement that the Republican nominee Donald Trump won the US presidential election. 

In addition, the Republican party gained majorities in both the US Senate and US Congress. This will make it easier for Trump to implement his Dollar-positive economic agenda, including higher tariffs on foreign imports and overall lower taxes. 

The reason Trump’s policies are bullish for the Dollar is because they will likely lead to increased spending, higher prices and rising inflation. This, in turn, will probably delay the Federal Reserve (Fed) from cutting interest rates. Higher interest rates attract greater foreign capital inflows so are positive for the Greenback. 

New Zealand (NZ) employment data came out as the votes were being counted in the US and these showed the Unemployment Rate rising to 4.8% in Q3 from 4.6% in Q2. That said the result was lower than the 5.0% expected. 

NZ Employment Change data declined by 0.5% in Q3, which was lower than the 0.4% decline forecast. The Labor Cost Index, a measure of wages, also fell below expectations, registering a 0.6% rise versus the 0.7% expected. ¡

The data will probably not change the outlook for the Reserve Bank of New Zealand’s (RBNZ) monetary policy – a major driver of NZD. Michael Gordon, Senior Economist at Westpac NZ, put the generally weak labor market and rise in joblessness down to, “more young people exiting the labor force, with study providing an outlet.”

NZ inflation declined to 2.2% in the September quarter, bringing it back inside the RBNZ’s target range of 1-3%. This prompted the central bank to lower its official cash rate (OCR) by a “double-dose” 50 basis points (bps) (0.50%) to 4.75% at its October meeting. This was the second consecutive rate cut from the bank and was as expected. 

Given the weakness of the NZ economy – Gross Domestic Product (GDP) fell by 0.2% in Q2 – and an overall long-term decline in demand from its largest trading partner China, the RBNZ is expected to implement further interest rate cuts to stimulate growth. This is likely to have a negative impact on NZD/USD going forward, particularly as the pace of Fed cuts slows down from Trump’s inflationary policies.