NZD/USD: Kiwi to Drop on Labor Data and Euro Zone Woes

The New Zealand dollar is forecast to extend its slide opposite the US dollar today as outlook for the domestic economy continues to deteriorate on the dismal jobs report for the third quarter. Meanwhile, risk-off trades are also seen to wane the Kiwi on heightened concerns over the Euro Zone’s debt affairs.

Yesterday, Statistics New Zealand reported that unemployment in the country reached a 13-year high in the September quarter, increasing talk of a possible rate cut by the Reserve Bank of New Zealand. The Jobless Rate rose from 6.8 percent to 7.3 percent during the three-month period, largely disappointing the markets who were expecting a decline to 6.7 percent. This marked the third consecutive quarterly rise in unemployment, and marked the highest read since the March 1999 quarter. Employment also fell by 0.4 percent as 13,000 more people joined the ranks of the unemployed. Analysts say that the labor market has been struggling to recover from the recession, with employers opting to take on part-timers rather than hiring permanent full-timers. In response to the grim figures, economists are increasingly expecting RBNZ Governor Graeme Wheeler to slash borrowing costs soon. The markets are now pricing in a 22 percent chance of a rate cut, up from just 12 percent prior to the release of the report. Such expectations are seen to send the Kiwi lower.

Meanwhile, bleak developments outs of Europe are also deemed to keep markets on the edge. After leaving interest rates at 0.75 percent, European Central Bank President Mario Draghi expressed that he saw few signs of recovery in the Euro Zone economy before the year-end despite easing financial market conditions. He said that the outlook for the economy has weakened, which is bound to influence its projections in December. Indeed, figures out yesterday showed German exports slid at their fastest pace since December 2011 as demand from its neighbors dropped.

Further adding to worsening sentiment are comments by German Finance Minister Wolfgang Schaeuble. He expressed that Greece’s debt crisis remains unresolved and that a meeting of Euro-region finance ministers next week could fail to take a decision on releasing bailout funds for Greece. A 31.5 Billion-Euro aid tranche for Greece has been frozen since June as Prime Minister Antonis Samaras’ coalition government negotiated over austerity measures and a two-year extension to meet the fiscal targets in its March bailout. Sources say that Euro area finance ministers are likely to wait for a full report on the country’s compliance with the terms of its bailout. Amid the uncertainty on Greece’s future, risk-off trades are deemed to weaken the New Zealand dollar. As such, a short position is advised today.

Aviv N. Shapiro is a Senior Research Analyst and Business Development Officer for AlgosysFx.