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NZD/USD Slides on Growing Unemployment

NZD/USD Slides on Growing Unemployment

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NZD/USD tumbled to its worst day in six-weeks after NZ labor market data for Q2 data revealed unemployment increased more than expected.

Data from Stats NZ shows the unemployment rate jumped to 3.3% in the three months leading to June. The number was higher than analyst forecasts of 3.2% and the 3.1% unemployment rate recorded in Q1.

Worst still, Employment Change data for the same period came in at 0%, way below the estimated 4.0% and the 0.1% print for Q1.

The stressed labor market is worrisome for the Reserve Bank of New Zealand (RBNZ), which may be forced to soften policy tightening if the economy weakens further.

The central bank, like many counterparts, has raised interest rates several times this year. Going forward, the bank plans to lift the cash rate as high as 4% over the next year, from the current 2.5%.

Whilst domestic economic data certainly played a part in yesterday’s decline, geopolitical tension is also a major factor.

Dollar Strengthens

Aside from the weaker kiwi, the US dollar strength is weighing heavily on the NZD/USD exchange rate. The greenback saw strong safe-haven flows in yesterday session on rising geopolitical fears.

Concerns that US house speaker Nancy Pelosi’s visit to Taiwan will stoke tensions in the region helped the US Dollar Index higher by 0.90%, heaping further stress on the New Zealand Dollar cross.

As a result, the near-term technical outlook has flipped from bullish to bearish.

NZ Dollar to US Dollar Outlook

The daily price chart shows yesterday’s decline has pulled NZD/USD below the 50-Day Moving Average (DMA) at 0.6294 (green line). Technical traders use DMA’s to gauge market momentum. Subsequently, we could see follow-through selling in the days ahead. Furthermore, the Relative Strength Index (RSI) is pointing south, suggesting the path of least resistance is lower in the immediate future.

That being said, foreign exchange markets are likely to be volatile and highly-reactive to headlines from both Chinese and US media outlets. For that reason, fundamental news will have more effect on price than technical indicators.

NZD/USD Price Chart

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.