Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


NZ employment booming, but RBNZ still wants lower NZD

New Zealand employment strong: Booming, but RBNZ still wants lower NZD

New Zealand’s labour market posted further improvement in Q1, with employment growth now running at a strong +3.7% y-o-y (market had +3.4%). The unemployment rate remained steady at 6.0% (market had 5.8%) reflecting a solid rise in participation. Overall, the economy is on track to post one of the strongest growth rates in the OECD this year. The labour market is improving in line with this story and we expect the central bank to hike rates further in June. However, the high NZD may mean fewer hikes than the RBNZ projected in March. In a speech today, the RBNZ’s governor reinforced their view that the NZD is seen as overvalued and raised the prospect of currency intervention.
Facts
- The household labour force survey showed that the unemployment rate remained steady at 6.0% in Q1 (market had 5.8%, HSBC had 5.7%). Employment growth was +0.9% in Q1 (market expected +0.6%, HSBC had +0.9%). In annual terms, employment rose by +3.7% y-o-y (market had +3.4%). The participation rate increased to 69.3%, from 68.9% in Q4.

- The quarterly employment survey (QES) showed full time equivalent employment growth of +1.1% q-o-q and growth in paid hours of +1.5% q-o-q.

- The labour cost index of wages (private sector ex-overtime) was up +0.3% in Q1 (market had +0.5%), to be +1.6% y-o-y.

- The RBNZ governor also delivered a speech this morning, discussing prospects for the dairy sector. On the NZD, the governor noted ‘the Reserve Bank considers that the exchange rate is overvalued and does not believe its current level is sustainable’. He also said that ‘if the currency remains high in the face of worsening fundamentals, such as a continued weakening in export prices, it would become more opportune for the Reserve Bank to intervene in the currency market to sell NZ dollars’.

Implications
New Zealand’s economy continues to pick up strongly and this is providing an on-going boost to hiring. Post-earthquake reconstruction, rising house prices, increased consumer spending and, until recently, very strong export prices have provided a significant boost to activity, and firms are increasing their workforce in response. Employment rose by a strong +3.7% y-o-y in Q1.

At the same time, an improving labour market is encouraging more people to enter the workforce, with New Zealand’s participation rate picking up further in Q1 to a new record high. This pick-up was enough to see the unemployment rate remain steady at 6.0%. This has helped keep pressure off wage inflation, which remains contained, for now.

Looking ahead, it is unlikely that the participation rate will continue to rise from its very high level. We expect strong growth to encourage an ongoing pick-up in employment and the subsequent tightening in the labour market to start to boost wage inflation in coming quarters.

Overall, today’s data were likely to be a little weaker than the RBNZ was expecting. The central bank was forecasting an unemployment rate of 5.6% in Q1. More broadly, the economy remains on track to post one of the strongest growth rates in the OECD this year and we continue to expect the central bank to hike rates further in June, to keep medium-term inflation in check.

However, we expect that rates may not be lifted as much as the RBNZ were projecting in March, largely because the NZD remains very high – we expect a further 50 basis points of hikes in 2014.

In a speech today, the RBNZ Governor flagged continued concern over NZD strength and raised the prospects of currency intervention from the central bank.

The RBNZ has four criteria to assess the suitability of currency intervention, that: the currency is exceptionally high or low; it is unjustified by fundamentals; intervention is consistent with the policy targets agreement; and, conditions in markets must be opportune and allow intervention a reasonable chance of success.

It is likely the first two criteria are currently being met and further falls in export prices could now present a further opportunity for intervention to be effective should the NZD remain stubbornly high.

However, in our view, a question mark remains over the third condition – whether intervention is consistent with the policy targets agreement. The RBNZ has already embarked on a process of raising interest rates to keep the domestic boom in check. A high currency is helping manage this boom, keeping overall inflation pressures contained. Even with the recent solid fall in dairy prices, New Zealand’s economic prospects remain bright – and a lower currency could make managing inflation more difficult.

That said, today’s comments from the RBNZ Governor increase the chances that the RBNZ may intervene in 2014.


ENDS

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Strike: Lyttelton Port Workers Vote To Escalate Dispute

Members of the Rail and Maritime Transport Union (RMTU) at Lyttelton Port today voted to escalate their industrial action. Around 200 RMTU members have been operating an overtime ban since 17 December and today they endorsed a series of full withdrawals of labour at the port. More>>

ALSO:

Scoop Business: NZ Dollar Falls To 3-Year Low As Investors Favour Greenback

The New Zealand dollar fell to its lowest in more than three years as investors sold euro and bought US dollars, weakening other currencies against the greenback. More>>

ALSO:

Scoop Business: NZ Govt Operating Deficit Smaller Than Expected

The New Zealand’s government’s operating deficit was smaller than expected in the first five months of the financial year as a clampdown on expenditure managed to offset a shortfall in the tax-take from last month’s forecast. More>>

ALSO:

0.8 Percent Annually:
NZ Inflation Falls Below RBNZ's Target

New Zealand's annual pace of inflation slowed to below the Reserve Bank's target band in the final three months of the year, giving governor Graeme Wheeler more room to keep the benchmark interest rate lower for longer.More>>

ALSO:

NASA, NOAA: Find 2014 Warmest Year In Modern Record

Since 1880, Earth’s average surface temperature has warmed by about 1.4 degrees Fahrenheit (0.8 degrees Celsius), a trend that is largely driven by the increase in carbon dioxide and other human emissions into the planet’s atmosphere. The majority of that warming has occurred in the past three decades. More>>

ALSO:

Scoop Business: New Zealand’s Reserve Bank Named Central Bank Of The Year

The Reserve Bank of New Zealand’s efforts to stifle house price inflation by using new policy tools has seen the institution named Central Bank of the year by Central Banking Publications, a publisher specialising in global central banking practice. More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news