On Wednesday, the New Zealand dollar surged, and NZD/USD traded at about 0.6018, up 1.1% for the day in the European session.
The labor market in New Zealand has been easing due to higher interest rates and the markets were expecting a soft jobs report for Q2. Job growth rebounded instead, and unemployment was lower than anticipated, pushing the New Zealand dollar sharply up.
In the second quarter, job growth expanded by 0.4%, up from -0.2% in the first quarter and higher than the -0.2% market estimate. The unemployment rate rose to 4.6% from 4.4%, slightly less than the 4.7% market estimate. Although this was the highest level since the first quarter of 2021, investors were happy that it was lower than anticipated.
The strong employment report has reduced market expectations of a rate reduction by the Reserve Bank of New Zealand, and this drove the New Zealand dollar sharply higher.
Inflation has dropped to 3.3%, the lowest level in 3 years and near the upper level of the central bank’s target range of between 1% and 3%. Although a soft employment report may have cemented a rate cut at the meeting next week, the job data was higher than expected, which will make the rate decision more complicated.
