NZD Update

Last week’s Quarter 1 employment survey in NZ was very positive. However the released data has been questioned by analysts as the unemployment figure fell a record 1.1 percent from 7.1 to 6 percent, which is the biggest drop in the surveys history. A small backward correction is therefore likely to occur in Quarter 2 but nonetheless the positive nature of the released data shows things are moving in the right direction for NZ’s economy.

The improvement in the labour market reinforces the likely scenario of a hike in the OCR in June, however a lot still depends on global data and how Europe bears up to the sovereign debt crisis.
Yesterday’s credit card spending data for April (released by the Reserve Bank) was down 1.7 percent, which was disappointing but not disastrous as the March data showed a very positive figure due to early Easter shopping. The figures are therefore likely to pick up again in May.

Other domestic data this week is BNZ’s Business NZ PMI (April) and the REINZ Housing statistics. Both are expected to show small improvements.

Overall the local data continues to point to tentative growth in the NZ economy, however we still have to keep an eye on the European debt crisis and see if that will have an impact on this side of the world. So far the impact to Australasian economies and markets has been minor.

The currency market was volatile over the past week – mainly moving off the back of global data and having little reaction to local releases. The hung parliament in the UK, the brief but sharp drop in the US equity market, and risk aversion have all played their part along with the ongoing task of the EU finance ministers battling the debt problem.
Considering risk aversion has come into play the NZ dollar actually faired ok over the past week. Normally we would see the NZD sold in high risk times however the domestic data probably lent just enough support to see it maintain levels.

Sterling lost ground against a number of its pairings last week in the face of the hung parliament and the NZ dollar was no exception. The GBPNZD rate moved down from 2.1 to 2.05. This week has seen a small recovery from last week’s low and we are currently sitting at GBPNZD 2.08.

The Euro continued to lose ground while the EU finance ministers hatch a plan in the face of the debt crisis. Having sat at EURNZD 1.8 mid last week the rate now is down to EURNZD 1.76.

The US dollar made small gains on the NZ dollar only to lose them again following the drop in the US equity market. NZDUSD dropped down to 0.7120 at the end of last week but has clawed back to NZDUSD 0.7222 mid this week.