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NZ jobless rate falls, but tepid wage and employment data hit currency
[WELLINGTON] New Zealand's jobless rate edged lower in the first quarter, taking it close to the decade-low reached last year, but sluggish wage growth and a drop in employment indicated a softer growth outlook, sending the currency sliding.
After Wednesday's release of job market data, the New Zealand dollar dropped 0.5 per cent to US$0.6638 from around US$0.6675, as some in the market factored in an increased probability of an interest rate cut.
The currency later settled at US$0.6648. The chance of a cut in the official cash rate (OCR) has increased in recent months, as the Reserve Bank of New Zealand grapples with the prospect of a weak economic momentum amid slowing global growth.
The RBNZ, which has a policy meeting on May 8, in March indicated its next move was more likely to be a cut in the OCR than a hike.
Data from Statistics New Zealand showed the unemployment rate slipped to 4.2 per cent in January-March, just below the previous quarter's 4.3 per cent, and in line with expectations of economists polled by Reuters.
The jobless rate dropped to a 10-year low in the quarter ending in September 2018.
But the drop in the jobless rate stemmed from fewer people participating in the workforce, as the participation rate fell to 70.4 per cent compared to a Reuters poll expectation of 70.9 per cent.
The number of jobs dropped 0.2 per cent, in contrast to the poll's forecast of a 0.5 per cent increase.
ANZ senior economist Miles Workman said the data is consistent with the softer growth outlook that implicitly lies behind the RBNZ's dovish position.
In a note, Mr Workman said he continues to expect a rate cut in August, "with next week's monetary policy statement to set the stage".
Other analysts have said they expect a rate cut at next week's meeting.
New Zealand business sentiment remained gloomy in April, providing further cause for the RBNZ to consider rate cuts.
The employment rate, which reflects the number of people employed as a share of the working-age population, fell to 67.5 per cent in the March 2019 quarter, from 67.8 per cent three months earlier.
This reflected a fall in the number of people employed and a rise in the working-age population, Stats NZ said.
"New Zealand has seen a softening of economic growth as measured by gross domestic product over the last six months, and we now are seeing that softening come through the employment rate," labour market and household statistics senior manager Jason Attewell said in a statement.
Wages grew 0.3 per cent from the previous quarter, compared to a Reuters poll expectation of 0.5 per cent, and annual growth was 2 per cent versus a prediction of 2.1 per cent.
"We expect further increases in wage growth to be gradual, with the peak in capacity pressures now behind us," said ANZ's Mr Workman.