Dollar tumbles on unexpected jobless jump

Thursday 5th August 2010 1 Comment

New Zealand's unemployment rate surprised markets as it surged back to a 10-year high in the second quarter and encouraged investors to bail out of the kiwi dollar.

Unemployment rose 0.8 percentage points to 6.8% in the three months through June, according to Statistics New Zealand's household labour force survey.

Economists were expecting the jobless rate to rise to 6.4% after its biggest decline last quarter, but today's rise took them unawares after a relatively benign Quarterly Employment survey released earlier this week.

The kiwi sank 0.8% to 72.89 US cents immediately after the announcement and recently traded at 72.74 cents. The currency had held up in spite of falling dairy prices on Fonterra's online trading platform, and throat-clearing from Finance Minister Bill English that its strength was holding back the recovery.

"This is a bit of reminder that the recovery is fairly subdued - we're not going particularly fast," said Darren Gibbs, chief economist at Deutsche Bank.

"The Reserve Bank's forecasts were a long way out from this and I would have thought they will form a more dovish view of the world."

Gibbs expects central bank Governor Alan Bollard will only hike the official cash rate once more this year. Bollard began tightening monetary policy in June after he slashed the OCR to a record low to help stimulate an economy in its worst recession in 18 years, amid a global credit crunch.

Markets have pared back their expectations for rate hikes over the coming year to 69 basis points, according to the Overnight Index Swap curve.

The number of people employed fell 0.3% to 2.17 million, while the participation rate was unchanged at 68%.

That comes after the QES showed quarterly gains in the number of full-time equivalent positions and filled jobs, along with an increase in the total number of paid hours.

Gibbs warned of margins for error in the HLFS.

"Today's figures notwithstanding, employment's probably edging up in a trend sense," he said.

The main driver in the increased joblessness came from a 1.6% decline in part-time employment in the quarter, while full-time positions rose 0.2%.

Philip Borkin, economist at Goldman Sachs & Partners, said the volatility in today's survey was "unfortunate" as it made interpreting the numbers difficult.

The shift away from part-time staff suggests "firms are looking to utilise more labour resources, but at this stage it is mainly coming through higher hours worked rather than actual staff employed," he said.

Businesswire.co.nz

Comments from our readers

On 6 August 2010 at 9:25 am Nereus said:

The goverment and the Reserve bank need to think of more long term policy's than their short term outlook to things.