The New Zealand Dollar (NZD) outperformed and New Zealand bonds underperformed on better-than-expected Q2 New Zealand labor market data, BBH FX analysts note. 

Q2 labor market data pushed NZD higher

“Employment unexpectedly increased 0.4% q/q (consensus: -0.2%, RBNZ forecast: 0.1%) vs. -0.3% in Q1. The unemployment rate rose two ticks to 4.6% (consensus: 4.7%, RBNZ forecast: 4.6%) while the participation rate increased a tick to 71.7% (consensus: 71.3%, RBNZ forecast: 71.5%). Finally, private wages grew 0.9% q/q (consensus: 0.8%, RBNZ forecast: 0.9%) vs. 0.8% in Q1.”

“The swaps market slashed the probability of a RBNZ rate cut on August 14 to 52% from 90% earlier this week. Our base case remains for the RBNZ to start easing in October with a 25bps cut. Market pricing is more aggressive and implies almost 50bps of cuts by October.”