NZD Slumps on Labor Market Slack, But May Still Edge Higher

New Zealand's employment numbers for Q2 have been released, and while they show strong job growth, labor market slack tempers the data. According to Brown Brothers Harriman's Elias Haddad, the New Zealand Dollar (NZD) and local yields slumped after the release.

The unemployment rate rose 0.2 percentage points to 5.6%, the highest since Q3 2015, while the underutilization rate increased 0.9 percentage points to 13.8%, the highest since December 2013. However, despite evident slack, Haddad argues that NZD can still edge higher due to above-target inflation and a relatively favorable growth outlook.

The Reserve Bank of New Zealand (RBNZ) is expected to continue tightening monetary policy, with the swaps curve pricing in nearly 100bps of cumulative tightening over the next twelve months to 3.50%.