Synopsis:

ING discusses the recent employment data from New Zealand and its implications for the Reserve Bank of New Zealand's (RBNZ) policy decision next week. The report suggests that the RBNZ is likely to hold rates, given the less-than-expected rise in unemployment and marginal increase in private wages. ING maintains a bullish outlook on NZD/USD due to the improved rate differential and stabilizing risk sentiment.

Key Points:

1. New Zealand Employment Data:

   • Unemployment Rate: Increased less than expected, rising from a revised 4.4% to 4.6% in Q2.
   • Employment and Participation: Both saw a surprising rise, contributing to a better-than-expected jobs report.
   • Private Wages: Marginally increased by 0.9% quarter-on-quarter.

2. Market Reaction:

   • NZD Performance: The New Zealand dollar (NZD) emerged as the best-performing G10 currency following the employment data.
   • Rate Cut Bets: Markets have trimmed bets on a rate cut by the RBNZ next week, previously almost fully priced in with a 50% implied probability.

3. RBNZ Policy Outlook:

   • Expected Hold: ING now expects the RBNZ to hold rates at the upcoming meeting, given the employment data.
   • Rate Cut Timing: ING suggests the RBNZ may wait for the Federal Reserve to move first, potentially delivering a 50bp cut at the October meeting.
   • Market Pricing: The meeting next week is seen as accurately priced by the market, close to a 50/50 call.

4. NZD/USD Outlook:

   • Bullish Bias: ING maintains a bullish outlook on NZD/USD.
   • Rate Differential: The significantly improved rate differential supports a stronger NZD.
   • Risk Sentiment: Stabilization in risk sentiment should unlock further upside for NZD/USD, targeting levels above 0.61 following the recent break above 0.60.

Conclusion:

ING's analysis suggests that the RBNZ is likely to hold rates at its next meeting, with a potential rate cut deferred to October. The better-than-expected employment data has improved the market's view of the NZD, supporting ING's bullish stance on NZD/USD. The pair is expected to benefit from the improved rate differential and stabilizing risk sentiment, with further gains anticipated beyond the 0.61 level.