New Zealand jobless rate climbs in Q3, market sees end to rate hikes

NEW Zealand‘s jobless rate rose to the highest in more than two years in the September quarter as employment slipped and wages grew by less than forecast, a soft report that cemented expectations of an end to interest rate hikes.

The local dollar fell 0.4 per cent to US$0.5805 as the market bet that rates had already peaked at 5.5 per cent and the next move from the Reserve Bank of New Zealand (RBNZ) would be downward, albeit not until late 2024.

Data released by Statistics New Zealand on Wednesday showed unemployment climbed to 3.9 per cent in the third quarter, up from 3.6 per cent the previous quarter and the highest since mid-2021.

Employment fell 0.2 per cent in the quarter, missing analyst forecasts of a 0.4 per cent rise and the first drop since the depths of the pandemic in mid-2020. “Monetary policy is working,” said Mary Jo Vergara, a senior economist at Kiwibank.

“The RBNZ should take comfort in today’s employment data coming in softer than their expectations and, as such, is further evidence that no more rate hikes are needed.”

Rates are already at 15-year highs, helping slow inflation to a two-year low of 5.6 per cent in the September quarter.

The central bank noted several headwinds for the economy in a financial stability report released on Wednesday, including financial stress among some borrowers and lower prices for key commodity exports.

Markets now imply only a 10 per cent chance of another hike at the RBNZ’s next policy meeting in late November, while some easing might come from around August next year.

Debt markets also rallied with two-year swap rates falling to 5.52 per cent, a long way from their October peak of 5.835 per cent.

SEE ALSO

RBNZ says full impact of interest-rate hikes still to be seen

New Zealand inflation poised to add to kiwi’s downside risks

New Zealand food-price inflation slows to 14-month low

New Zealand central bank leaves cash rate steady at 5.5%, past hikes constraining activity

More

Wednesday’s data showed cost pressures were cooling as ordinary time wages rose 0.8 per cent in the third quarter, under forecasts of 1.0 per cent and pulling annual growth down to 4.1 per cent.

Annual growth in overall labour costs held at 4.3 per cent - but only because of high awards in the public sector. Growth in the private sector slowed to 4.1 per cent.

“With the labour market cooling in earnest now, we expect wage growth to continue easing in the quarters ahead,” said Abhijit Surya, an economist at Capital Economics, who sees the jobless rate hitting 4.5 per cent by year-end.

“All told, the data support our view that the RBNZ’s tightening cycle is at an end.” REUTERS