Australian employment report & RBNZ economic update in focus - MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the performances of the Australian and New Zealand dollars have diverged overnight. 

Key Quotes

“The Australian dollar has derived support from the ongoing improvement in global investor risk sentiment which is boosting carry demand. The price of iron ore has also continued to rebound since bottoming in early June offering support for the Aussie. The main economic data release overnight was the Australian employment report which revealed that the labour market has continued to improve. Sample rotation effects were significant in this month’s survey. As a result it is better to focus on the underlying trends.

Employment growth has been healthy over the last year averaging just under 20k jobs/month although it has weakened in the first half of this year. It is allowing the unemployment rate to gradually trend lower. The report is unlikely to prompt the RBA to consider further monetary easing. The main policy concern for the RBA is uncomfortably low inflation. The release of the Australian CPI report on the 27th July has the potential to be more of a market mover for the Aussie.

In contrast, the New Zealand dollar has weakened overnight following the announcement from the RBNZ that it will issue an unscheduled assessment of the economy next week which has encouraged speculation that it could lower rates again at their next meeting on the 10th August. The updated economic assessment will be published on the 21st July and won’t include a review of the official cash rate. 

The RBNZ stated that the economic assessment was being made because there was a longer-than-usual period between their policy decisions. It will allow the RBNZ to provide a more timely economic update following the Brexit vote. The RBNZ could also signal heightened concern over the strength of the New Zealand dollar.”