New Zealand's strong jobs data heightens rate hike bets

[WELLINGTON] New Zealand's jobless rate fell sharply in the second quarter, beating expectations and sending the kiwi dollar higher as markets saw the upbeat data as a further sign that monetary policy will be tightened this month.

Data released by Statistics New Zealand on Wednesday showed the jobless rate fell to 4.0 per cent in the quarter ending June from a revised 4.6 per cent in the previous quarter, when analysts had expected it to hold at 4.5 per cent.

The jobless rate is the lowest since December 2019 and back at pre-Covid levels after the pandemic lockdowns saw the unemployment rate surge to 5.3 per cent last year.

The New Zealand dollar rose 0.4 per cent on the upbeat news to reach US$0.7041.

The seasonally adjusted number of employed rose 1.0 per cent in the first quarter, again topping forecasts of a 0.7 per cent increase.

The participation rate rose to 70.5 per cent and the underutilisation rate fell to 10.5 per cent.

Wage growth accelerated in the June quarter with private sector labour cost index (LCI) recording a 0.9 per cent lift, higher than a forecast 0.6 per cent increase.

New Zealand's early response to the pandemic has allowed the economy to return to pre-pandemic normalcy, though a lack of foreign tourists has badly hit key sectors.

New Zealand had to shut a travel bubble with Australia last month due to a fresh outbreak in Sydney.

The strong jobs data affirms economists' views that the Reserve Bank of New Zealand (RBNZ) will raise the official cash rate (OCR) when it meets on Aug 18.

The data shows New Zealand has flown past full employment, and that the economy is becoming quite overheated, ANZ Bank said in a note.

"The RBNZ needs to hike the OCR promptly to get on top of this. We now expect faster hikes this year," said ANZ chief economist Sharon Zollner.

ANZ expects that OCR will be raised at the August, October, and November meetings, with two more hikes in February and May bringing the OCR to a terminal rate of 1.5 per cent by mid-2022.

REUTERS