New Zealand dlr rises as jobs boom portends rate hike in August

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SYDNEY, Aug.4 (Reuters) – The New Zealand dollar soared on Wednesday after very strong employment data cemented expectations of an interest rate hike this month as policymakers attempt to calm a sizzling economy.

The kiwi climbed to $ 0.7046, a gain of 1% for the week so far, before meeting strong chart resistance around $ 0.7050. A breakout would pave the way for the July peak around $ 0.7105.

The Australian dollar rose in sympathy to $ 0.7397, but has so far failed to break through resistance at $ 0.7415.

The kiwifruit took off when data showed New Zealand’s unemployment rate fell sharply to 4.0% in the last quarter, well below market forecast of 4.5%, while employment surged 0.9%.

Wages have also exceeded expectations, as border closures restricted labor supply even as activity increased, especially in the booming housing market.

“Today’s figures highlight that the national economy is in turmoil and no longer justifies the degree of monetary stimulus currently in place,” said Michael Gordon, Westpac acting chief economist for New Zealand.

“This increases the likelihood of an OCR (rate) hike in August.”

The data comes just a day after the Reserve Bank of New Zealand (RBNZ) said it was considering new ways to tighten mortgage lending standards to restrict the housing market.

Indeed, Governor Adrian Orr stressed that interest rate policy must go hand in hand with macroprudential rules, and specifically noted that the RBNZ would address this issue at its August 18 policy meeting.

“The Reserve Bank’s monetary policy committee needs to think about when and how we will bring interest rates back to more normal levels, which does not unnecessarily boost the economy or push it back to normal. brakes, ”Orr said.

The market took this as virtual confirmation rates would rise from the current 0.25% at the policy meeting. Overnight indexed swaps involve a 100% chance of going down to 0.5% and a real possibility of rates could reach 1% by Christmas.

Two-year bond yields climbed to 0.8% and two-year swap rates hit 1.225%, up 20 basis points in just two sessions.

A hike this month would make the RBNZ the first central bank in the developed world to tighten, and put it far ahead of the Reserve Bank of Australia (RBA) which is still talking about not budging until 2024.

Yet the RBA surprised the markets on Tuesday by continuing to reduce its bond purchases despite the economic toll of coronavirus lockdowns in the country. (Reporting by Wayne Cole; editing by Richard Pullin)


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