NZD holds firm despite mixed jobs data – BBH

NZD/USD is consolidating recent gains around 0.6000. New Zealand’s Q1 labor market data was mixed and still argues for additional RBNZ easing, BBH FX analysts report.

RBNZ hints at more rate cuts

"The unemployment rate was unexpectedly unchanged at 5.1% in Q1. Consensus was for a 0.2pts rise to 5.3% while the RBNZ had 5.2% penciled-in. However, other data point to weaker demand for labor. The underutilisation rate rose 0.1pts to 12.3% (the highest since Q3 2020) and the participation rate fell 0.1pts to 70.8% (the lowest since Q2 2021). Moreover, wage growth cooled more than expected. Private wages increased 0.4% q/q (consensus: 0.5%, RBNZ forecast: 0.6%) vs. 0.6% in Q4 and slowed at an annual pace of 2.6% (lowest since Q3 2021) vs 3% in Q4."

"At its April 8 meeting, the RBNZ cut the Official Cash Rate (OCR) by 25bps to 3.50% and noted it 'has scope to lower the OCR further as appropriate'. The RBNZ warned that “the recently announced increases in global trade barriers weaken the outlook for global economic activity. On balance, these developments create downside risks to the outlook for economic activity and inflation in New Zealand.” The swaps market price-in 75bps of rate cuts in the next six months and the OCR to bottom around 2.75%. The risk is the RBNZ slashes the OCR towards the lower end of its 2% to 4% neutral range estimate."

"RBNZ published its six-monthly Financial Stability Report and warned that financial stability risks increased due to the trade war. Encouragingly, the RBNZ also noted that banks were in a strong financial position to manage potential loan defaults."