On Tuesday, the New Zealand dollar showed strong volatility for the second straight day. NZD/USD rose by 0.74% to 0.5980 earlier but has trimmed most of these gains. NZD/USD traded at about 0.5947, up 0.15% in the North American session.
New Zealand’s labor market is starting to crack due to high interest rates and the employment scenario will likely darken after the employment report for the second quarter is released on Wednesday.
It is expected the unemployment rate will jump to 4.7%, versus 4.3% in Q1, which was the highest reading since the first quarter of 2021. Job growth will likely drop by 0.2% for the second consecutive quarter. Labor costs are also expected to drop from 3.8% in Q1 to 3.5% y/y in the second quarter.
A soft labor market will support a rate cut by the Reserve Bank of New Zealand at the meeting next week. The central bank has held rates at 5.5% for nine consecutive meetings and may press the rate-cut trigger as inflation has fallen to 3.3% from 4% in Q2, the lowest in 3 years.
The Reserve Bank will also be watching inflation expectations for Q2, which are due to be released on Thursday. Inflation expectations have been falling steadily since 2023 and fell to 2.33% in May.
