New Zealand Dollar Rallies as Job Data Opens Door to RBNZ Rate Hike

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According to analysts at one of New Zealand's biggest banks, the Reserve Bank of New Zealand could raise interest rates again this month following strong labour market numbers.

The New Zealand Dollar was the best-performing G10 currency after New Zealand reported a set of better-than-expected labour market numbers that ANZ Bank says raises the odds for a Reserve Bank of New Zealand interest rate hike in February.

Employment increased 0.4% quarter-on-quarter in the fourth quarter of 2024, said StatsNZ, which was above the 0.3% the market expected and makes a return to growth from the third quarter's -0.2%.

The country's unemployment rate rose to 4.0% from 3.9% but the increase was less than the 4.2% the market was expecting.

The Reserve Bank of New Zealand (RBNZ) will be particularly interested in an uptick in wages as the labour cost index rose 1.0% q/q in Q4, exceeding the estimate and the previous quarter's figure of 0.8%.

The New Zealand Dollar was higher against all its G10 peers following the release amidst firming New Zealand bond yields:


Above: NZD was the day's best-performing G10 following the labour market data release.


The New Zealand Dollar to U.S. Dollar exchange rate rallied to 0.6123 and back above the 200-day moving average following the figures.

The Pound to New Zealand Dollar exchange rate fell back to test support at 2.0675 amidst the NZD rebound, and the Euro to New Zealand Dollar rate ended the day 0.60% lower at 1.7644 (recall the data was released late on Tuesday European time).

"All up, loosening in the labour market should support a moderation in domestic inflation over 2024, but progress has been a little slower than we and the RBNZ had anticipated," says Henry Russell, an economist at ANZ Bank.

In fact, ANZ reckons a 25 basis point hike from the RBNZ later this month has become a very real possibility, and RBNZ Governor Orr’s speech on 16 February could raise the market-perceived probability of a hike further (now around 20%, up from 5% before the data).

This would set the RBNZ apart from global peers increasingly looking to make their next move a cut. This can underpin New Zealand's bond yields relative to elsewhere, offering the NZ Dollar support via the rates channel.


Above: Contributions to change in unemployment, courtesy of ANZ.