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AUD/NZD Slides on Dovish RBA ahead of NZ Employment Data

Tonight, the AUD/NZD will remain in focus because we will have key jobs data from New Zealand which could move the kiwi sharply, after the Reserve Bank of Australia Governor dropped the bomb on the Aussie in a surprisingly dovish speech overnight, as my colleague Matt Weller reported earlier. We think there is the potential for a sizeable move to the downside for this popular cross going forward, especially if NZ jobs numbers beat expectations again.

Overnight saw the AUD/USD and other Aussie pairs dropped sharply after the RBA Governor Philip Lowe spoke about cutting rates. In a speech, among other things, he said:

  • “There are scenarios where the next move in the cash rate is up and other scenarios where it is down”
  • “In the event of a sustained increased in the unemployment rate and a lack of further progress towards the inflation objective, lower interest rates might be appropriate at some point”
  • But the board did “not see a strong case” for a change in the cash rate in the near term.

This came as surprise because the RBA had made a decision on policy just the day before, in which there was no mention of a rate cut.

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Meanwhile, New Zealand’s quarterly employment report is due for release later on today or Thursday morning NZ time. Employment is expected to have risen by 0.3% in Q4, while the unemployment rate is seen rising to 4.1% from 3.9% previously.  Based on the following points, we wouldn’t be surprised if the data were to beat expectations again:

  • The trend for employment in NZ has been a positive one, with employment in the third quarter of last year rising by a solid 1.1%, easily beating forecasts
  • In fact, NZ employment have grown in each of the past 5 quarters, and by better-than-expected results
  • Over the past 12 quarters, NZ employment has only fallen once. Over that period, we have seen a good 10 readings that were above forecasts; one which met expectations and the only miss was the unexpected drop

So, with a potential beat in NZ employment data or maybe even a small miss, the AUD/NZD could fall further. The key resistance level to watch is at 1.0450/60, an area which had been support in the past. We expect this level to hold going forward, but we would drop our bearish bias if the most recent high around 1.0535 gives way. The slopes and positions of the moving averages on the chart conform to our bearish view.

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