The New Zealand dollar eased to around $0.587, pulling back from a two-month high after a weaker-than-expected labor market report cast doubt on how much further interest rates might rise this year. The unemployment rate rose to 5.6% in the second quarter, its highest level since the third quarter of 2015 and above the consensus forecast of 5.4%, indicating increasing slack in the labor market.
While employment grew 0.5% from the previous quarter, beating expectations for a 0.1% increase, the expansion was largely driven by a strong rise in labor force participation. At the same time, annual wage growth held at a subdued 2.0%, signaling limited wage pressures and suggesting it is unlikely to become a major driver of inflation. That, in turn, weakens the case for a more aggressive tightening cycle.
Even so, markets continued to price in a rate hike in September, after the Reserve Bank of New Zealand indicated last month that further tightening would likely be required to fully withdraw monetary stimulus and keep inflation in check.
