Following the Australian currency today, the New Zealand dollar as its closest "ally" has collapsed. The catalyst for the decline was the disappointing release of data on the labor market in New Zealand, although such a scenario has been brewing for a long time. The slowdown of the Chinese economy, as well as the dovish rhetoric of RBA, could not but affect the New Zealander, which depends heavily on both the PRC and Australia. A weak macroeconomic data served only as a trigger for the downward impulse of NZD/USD.
Data on the labor market in New Zealand was really disappointing. The unemployment rate rose to 4.3% in the fourth quarter of last year, with a growth forecast of 4.1%. The increase in the number of people employed fell to 0.1% in quarterly terms and the last time such weak rates were recorded in the second quarter of 2017. In annual terms, the indicator continued the negative trend, dropping to 2.3% and the decline was recorded for the second quarter in a row. Salaries remained at the same level, although most experts expected the indicator to grow to 0.6%, while the indicator remained at around 0.5%.
It is likely that in other conditions the New Zealander would react more restrained since nothing catastrophic happened. Although unemployment increased, it remained below the level where it was for many years. For comparison, this figure was at around 5.2% in the fourth quarter of 2016 and over the next two years, it fluctuated in the range of 4.9% -4.4%. The increase in the number of employees certainly disappointed, but here it is necessary to recall the recent decisions of the New Zealand government in the area of labor market development. Thus, the Cabinet plans to send more than three billion dollars to create 10,000 new jobs in rural areas of the country. This is a long-term program but the effect of its implementation will be noticeable already this year - at least, members of the government assure it.
There are other fundamental factors in other conditions that could support the New Zealand dollar. We are talking about the price index for dairy products. Agriculture, especially the dairy industrial population of cows and sheep, plays an important (if not key) role for the economy of New Zealand, along with tourism. Therefore, the positive dynamics in this area is essential for government officials and for the Central Bank.
The main indicator of the state of affairs with the "milk" is the price index for dairy products, which is formed on the basis of the auction (auction) results of the New Zealand GDT (Global Dairy Trade) exchange. Therefore, after a significant decline in December (due to seasonal factors), this index shows a gradual but steady growth at the beginning of this year. Each January auction demonstrates a positive trend, wherein based on the latest results, the index came out at 6.7%. This is the strongest growth rate since November 2016.
Despite all of the above factors, the New Zealander, paired with the dollar, collapsed more than 150 points in a day, continuing to demonstrate a bearish mood. The fact is that traders are seriously concerned about the softening of the rhetoric of the Reserve Bank of New Zealand, whose meeting will take place as early as next week on February 13. The head of the Australian regulator has already made interest rate cuts this year, given the increased risks of internal and external nature. Adrian Orr may follow the example of his colleague since the economic problems of Australia and New Zealand are due to China as the common cause.
The slowdown of the Chinese economy is most acutely reflected in the dynamics of economic growth in these countries. For example, Australia's GDP growth was only 2.8% by the end of the year, while RBA experts expected this figure to be 3.4%. A similar situation exists in New Zealand, where economic growth has slowed to 2.6%. I repeat that the New Zealand economy depends on both China and Australia, thus, the current situation may really worry the members of the RBNZ.
In the summer of last year, the New Zealand regulator already assumed the possibility of a reduction in the interest rate, after which the NZD/USD pair updated the annual minimum and reached the 64th figure. If the concern of traders next week is confirmed, the southern dynamics of the pair will continue at a fairly dynamic pace. The disappointing data on the labor market in New Zealand only increased the likelihood of such a scenario, despite all the other fundamental factors of a positive nature.
In technical terms, the NZD/USD pair on the daily chart is located in the Kumo cloud and between the middle and lower lines of the Bollinger Bands indicator. The first level of support is the mark of 0.6690, which is the lower Bollinger Bands. The strongest level looks like the mark of 0.6600, where a correctional pullback is possible from it if the dollar bulls do not strengthen their positions and do not push the price to the 65th figure.
