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Quick thoughts AUD/NZD

Written by Sam Coxhead on July 7th, 2011.      0 comments

2:30 PM (NZT) Just released Australian Employments numbers show a stable unemployment rate of 4.9%, and employment jobs growth was driven by an increase in fulltime employment of 59k, that was a little offset by the drop on part-time employment by 36.5k. The full time component was better than expected and has seen the AUD appreciate against most currencies.
The AUD had been trading a small range in offshore markets as the EUR and GBP was under pressure from the USD. This coupled with the Chinese hike of the interest rates by 25pts loomed as negative factors for both the AUD and NZD.
The state of the employment market is definitely a major factor the Reserve Bank of Australia considers when looking at the cash rate. A strong number such as this will add weight to a move higher in the cash rate before the end of the year. If we see pick up in the recently softer numbers, the chances of a hike from the RBA will increase. Given the global risks in the market at the moment, their current “wait and see” attitude is prudent in my view. But if we see a rebound in the other statistics along with the tight labour market, then a hike before the end of the year will definitely be on the cards, and of course this would be AUD positive.  Currently there is a little under 50% chance of a hike priced by December for Australia.
The NZD has been pushed lower as investors sell NZD and buy AUD. The NZD has had a particularly good run against the AUD of late, so some kind of profit taking was to be expected on a strong number such as this.
The NZD/AUD has dropped from .7740 to .7690 at the interbank level currently. The data for Australia and New Zealand is now finished for the week, next week is light in top tier Australian data , but in NZ we have the delayed first quarter GDP number. Given it has been delayed so much because of the earthquake, this number will be discounted a little , so we can expect to see further sideways movement from this pair in the coming week, probably within the .7600/.7750 range.