Australian Unemployment Drops, Will the NZD Remain Soft?
19 May 2017 by News DeskThe Australian labour market took investors by surprise this week allowing the Australian dollar (AUD) exchange rate to tick up against other majors, say currency experts FC Exchange.
Australian Unemployment Fall Takes Market By Surprise, AUD Bolstered
The Australian economy produced good figures during Thursday’s session with the revelation that the Australian labour market was tightening. The Australian unemployment rate dropped unexpectedly from 5.9% to 5.7% in April, despite forecasts to remain at 5.9%. the Australian employment change figure came in at 37.4K, economists had only predicted 5.0K. The rise in employment is likely to push inflation higher in the near future and may prevent the Reserve Bank of Australia (RBA) from conducting interest rate cuts.
Capital Economics economist Paul Dales commented: ‘The labour market has come to life even though economic growth has slowed a bit. We doubt the unemployment rate will rise back much, but equally it’s unlikely to fall far too. Overall these figures further reduce any lingering chances of more rate cuts. But the labour market won’t prompt the RBA to hike rates for a long time yet.’
However, it’s not all good news. The amount of Australian’s in full-time employment has sank by 11.6K, meaning although more people are in employment, they’re working less hours. Part time employment seems to be a growing trend in the nation and could cause some concern to industry experts. In the past year, part time employment has jumped by around 111,300.
Credit Suisse’s New Zealand Dollar (NZD) Exchange Rate Forecast
Investment banking giant Credit Suisse has suggested that the New Zealand dollar will remain a passive player in the market after proving itself to be one of the worst-performing currency majors in recent months.
New Zealand sports higher interest rates than most nations with the Reserve Bank of New Zealand (RBNZ) setting the Official Cash Rate (OCR) at 1.75%. A higher interest rate would by an economic chain of events usually cause a currency to attract more popularity, but the prospect of no further rate hikes until 2019 or 2020 is of little favour to the Kiwi dollar.
In the past year, political events the world over have rocked markets and caused significant currency volatility. The New Zealand dollar may experience some similar politically induced fluctuations later in the year when citizens head to the polls and vote in their own election. At the moment, it seems as if a pro-spend government may come into power.
A higher spend level often translates into a looser fiscal stance which can work in a currency’s favour, but with the Kiwi dollar, Credit Suisse analyst Honglin Jiang expects to see it lag.
Jiang commented: ‘The effect is likely to be felt more in the longer term rather than the short term, as economic effects apply with a lag, election uncertainty needs to be overcome, and the RBNZ reworks their modelled effects of monetary policy. As such, a relatively loose fiscal policy should help the NZD achieve our longer-term bullish view.’
Disclaimer: This economic update is provided by FC Exchange a Global Reach Group Company, industry leaders in foreign exchange. Authorised affiliates are permitted to reuse content.
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