XM Group - Analytics

    XM Group

    609.00 6.50/10
    72% of positive reviews

    Kiwi under pressure on weak employment growth and lower dairy prices

    The New Zealand dollar touched a new 6-year low earlier on Wednesday, dropping to 0.6517 against the US dollar. A modest recovery in oil prices and an aussie rally provided only limited support to the kiwi as weak employment data and another drop in the global dairy price index weighed on the currency.

    Employment in the second quarter rose by just 0.3% in New Zealand, against expectations of a 0.5% rise. This was down on the first quarter’s 0.7% growth. The 7,000 jobs created were not enough to offset the rise in the number of jobseekers and the unemployment rate edged up to 5.9% in the second quarter from 5.8% in the first quarter. Wage growth was muted, up by 1.8% in the second quarter from a year earlier, providing little threat to inflation.

    The weakening job market points to a further slowdown in New Zealand’s economy in the second quarter, which is battling falling commodity prices, particularly dairy prices. Dairy is New Zealand’s largest export industry and declining prices have lowered the growth outlook for 2015. Dairy prices were 9.3% lower after the latest dairy auction on Tuesday, putting further pressure on the kiwi.

    The Reserve Bank of New Zealand recently toned down its calls for further depreciation of the New Zealand dollar as it no longer views it as overvalued. The change in the RBNZ’s language led to a brief rally in the kiwi at the end of July, hitting a high of 0.6737 against the dollar. But further cuts in the cash rate by the RBNZ are likely in the coming months as the economy faces slowing growth and near zero inflation. Economists expect rates to be cut to 2.5% by the end of the year from the current 3%.

    With the medium term outlook unchanged, the New Zealand dollar is likely to continue to depreciate against the US dollar. The kiwi was trading near its 6-year lows in mid-European session at 0.6535 against the dollar. While against its Australian counterpart, it was slightly up on the day as the aussie fell to 1.1265 against the kiwi.

    Risk Warning: Forex, Commodities, Options and CFDs (OTC Trading) are leveraged products that carry a substantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you fully understand the risks involved and do not invest money you cannot afford to lose. Please refer to our full Risk Disclosure.

    To leave a comment you must or Join us

    By visiting our website and services, you agree to the conditions of use of cookies. Learn more
    I agree