The New Zealand dollar is foreseen to weaken further opposite the US dollar today on a deteriorating economic outlook for the South Pacific economy. Figures released earlier today revealed that unemployment in New Zealand hit a 13-year high in the third quarter, potentially opening the door for the Reserve Bank of New Zealand to cut interest rates to underpin growth. Meanwhile, risk-off trades are deemed to dominate today amid concerns that re-elected US President Barack Obama and the Republican-controlled US Congress will struggle to ward off the so-called fiscal cliff.
In a report that largely disappointed the markets, the New Zealand government revealed that the nation’s Jobless Rate unexpectedly climbed from 6.8 percent to 7.3 percent in the September quarter, marking the third consecutive quarterly rise. The last time the rate was higher than 7.3 percent was in the March 1999 quarter. Employment also fell by 0.4 percent as 13,000 more people joined the ranks of the unemployed. Workers in professional, scientific, technical, administrative and support services recorded the largest drop in jobs, falling nearly 10,000 during the quarter. According to analysts, the labor market has been struggling to recover from the recession, with employers opting to take on pat-timers rather than hiring permanent full-timers.
In response, the Council of Trade Unions said that the government “needs to act on jobs now.” With 400,000 people out of work, the country is in a national crisis, the union expressed. Likewise, market expectations that RBNZ Governor Graeme Wheeler would cut the Official Cash Rate next month increased. The Reserve Bank has kept rates at a record-low 2.5 percent since March last year. Wheeler said yesterday that the central bank has scope to cut borrowing costs if necessary. Markets are now pricing in a 22 percent chance of a rate cut, up from just 12 percent yesterday. On such rate cut expectations, the Kiwi is apt to fall today.
Meanwhile, US stocks slid in the first day after the election as President Obama’s re-election likely sets up a showdown with the House over the budget. At the top of investors’ minds is the fiscal cliff, the automatic spending cuts and tax hikes looming at year’s end. If Obama cannot successfully resolve the crisis with the Republican-controlled House, the “cliff” could slow growth and worse, push the economy back into recession. With demand for safe-haven currencies expected to rise further, a short position is recommended for the NZD/USD.
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