Summary

• Data from New Zealand was a disappointment as employment, wages came out below estimates
• NZD is by far the weakest G10 currency today
• NZDUSD could reverse from the key zone

The labour market data from New Zealand was by far the most important release during the Asian session and is among the top drivers for the market today (other being the US ADP release and the DOE report on the oil market). NZDUSD has seen a strong rally recently on a combination of weak US dollar, decent mix of domestic data and strong market sentiment. Therefore expectations were running high.

Employment growth slowed down in the second quarter in New Zealand, disappointing markets. Source: Macrobond, XTB Research 

Labour market statistics are still decent in New Zealand but they came in way below expectations. Namely:

• employment change on a quarter was -0.2% vs expectations of +0.7% and a previous reading of +1.1% (revised downwards from 1.2%)
• Average hourly earnings accelerated to +0.8% q/q from +0.3% but missed expectations of +0.9%. Other measures of wage gains were lower than expected as well.
• Unemployment rate remained flat at 4.8% but only because participation rate (a share of population willing to work) slid from 70.6 to 70% 

Let us recall that New Zealand saw a much weaker than expected inflation in the second quarter. If we mix weaker inflation, weaker labour market and a strong currency the central bank (RBNZ) may find it necessary to signal cautiousness that could cool down expectations of future rate increases and lead to NZD depreciation. Add it to the fact that the NZD has been relatively overbought by speculators (according to the CFTC data) so they could find some reasons to liquidate their positions.

NZDUSD could potentially reverse from this key resistance zone. Source: xStation5 

While NZDUSD remains in an upward trend we can see that the pair has approached the key resistance zone just below 0.75 on the weekly interval. It looked as if it was ready to break higher but today’s reaction could complicate this task for the bulls. Although we are still in the first half of a trading week this could look like a bearish engulfing, a pattern that could lead to at least a correction. In such case a pullback towards a lower limit of an upward channel (around 0.70 now) could be in store. Remember that the pair will be affected by the ADP release from the US later today (1:15 BST) so keep a close eye on the data.