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ING’s Francesco Pesole expects New Zealand’s Q2 labour data to broadly match the Reserve Bank of New Zealand’s May projections, which implied one to two hikes in Q3. He favours a hike in September or October, with rising conviction for September. Pesole sees NZD/USD holding near 0.585–0.590, with a year-end target at 0.59 and 0.60 increasingly attainable.
Labour data seen matching RBNZ view
“New Zealand releases its 2Q labour market data tonight. High-frequency indicators point to only 0.1% QoQ employment growth, while unemployment is expected to edge up from 5.3% to 5.4%. That would broadly match the Reserve Bank of New Zealand’s May projections, which implied 1-2 hikes in 3Q. Since July’s hike, markets have continued to price around 20-25bp of tightening for the 2 September meeting.”
“We have long favoured a hike in either September or October, but our conviction around a September move has increased recently. The main reason is that markets may be overstating the scale of the tightening cycle, with 75bp priced in by February.”
“We suspect two of the six policy committee members were not fully aligned with May’s hawkish shift, meaning the narrative may ultimately settle around a smaller 50bp “insurance” tightening cycle. If so, that would argue for an earlier move in September and then a pause.”
“NZD has been one of the stronger performers since the Fed meeting, clearly outpacing AUD after the latter suffered a sharp dovish repricing following a soft CPI release. NZD/USD may remain around the 0.585-0.590 range for now, but a September hike delivered with a slightly dovish tone could prompt some correction and open the door to a period of AUD outperformance relative to NZD.”
“Our year-end target for NZD/USD is currently 0.59, though 0.60 is looking increasingly attainable.”
