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NZ dollar falls after unemployment rate rises

The New Zealand dollar fell after unemployment data for the June quarter surprised on the upside after surprising on the downside last quarter.Investors are scratching their heads but said the 6.8 percent unemployment rate in the June quarter is consisten

NZPA
Thu, 05 Aug 2010

The New Zealand dollar fell after unemployment data for the June quarter surprised on the upside after surprising on the downside last quarter.

Investors are scratching their heads but said the 6.8 percent unemployment rate in the June quarter is consistent with a slow recovery and increased the chance that the Reserve Bank of New Zealand (RBNZ) will pause in its next interest rate review or the one after that.

The drop in the unemployment rate from 7.1 percent to 6 percent in the March quarter had been hard to reconcile.

The NZ dollar fell sharply on today's data from US73.57c to US72.75c but quickly consolidated and was at US72.82c in early afternoon trading. It was US73.52c at 8am compared with US73.44c at 5pm yesterday.

"There was a big reaction immediately and then it stabilised quickly," said Imre Speizer, senior currency strategist at Westpac.

He said the headline grabbing unemployment number raised questions about the quality of the survey and caused people to question if the RBNZ will hike next month, but the detail in the survey was positive.

"It has increased the chances of a pause next month but we still think they will go," he said.

To go in two quarters from an unemployment rate of 7.1 percent to one of 6.8 percent was more in line with history and consistent with other data on the economy.

But the central bank was not getting traction with its monetary policy tightening because yields in the wholesale money market have fallen, rather than risen.

The two-year swap rate has fallen around 40 basis points since the RBNZ started tightening. It fell around five to seven basis points to 6.39 percent today.

The NZ dollar also fell against the Australian dollar to be A79.46c by early afternoon from A80.16c at 8am and A80.49c at 5pm yesterday.

It was at 0.5528 euro from 0.5558 yesterday, and 62.83 yen from 62.72.

The trade weighted index fell to 67.24 by early afternoon from 67.68 yesterday.

NZPA
Thu, 05 Aug 2010
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NZ dollar falls after unemployment rate rises
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