New Zealand headline Unemployment Rate for Q1 came in at 6.2%, a sharp decline from the 6.8% previous quarter, suggesting that NZ economy is going in the right direction with unemployment rate climbing down since the 7.3% surprise back in Q3 2012. This is also the largest Q/Q % increase in employment figure since the financial crisis back in 2008, which puts NZ in the front seat as the first developed economy to move out of the crisis shadows (US is not counted despite record stock prices as unemployment rate remains high and Fed is still continuing to attach QE life support machine to the economy).
According to the Statistics New Zealand's Household Labour Force Survey, overall participation rate has actually increased from 67.2% to 67.8%, making the strong 0.6% dip in unemployment rate all the more impressive. Much of the increase in employment came from the Canterbury region, whose own 4.3% unemployment rate is the lowest in New Zealand and mostly attributed to the rebuilding efforts of Christchurch after the earthquakes.
Some astute traders may wonder why RBNZ revised the estimated 2013 GDP lower by a 0.7% recently given such strong employment data? Well, looking beyond the headline figure, employment doesn't seem to be so strong - Excluding Canterbury, rest of the country is at 6.6%, which is admittedly not too shabby itself, but Auckland currently stands at 7.3%, with Northland coming in at 10.0%. It seems that the healthy numbers are purely driven by the rebuilding investments, which is definitely not sustainable. Tradable sector remains highly weak, which is in line with our understanding of the damage from the drought. Once we understand that, the previous assertion that New Zealand being able to walk out of 2008's shadows suddenly doesn't seem so strong anymore.
NZD/USD rallied strongly once the headline numbers were released, hitting the 0.8465 support turned resistance which has been in play since last week. Perhaps market had cold feet after reading the subsequent numbers as shown above, or perhaps the resistance level was just too strong from a technical basis. Whatever the reason may be, it is clear that overall sentiment remains bearish. From a technical perspective, price faced resistance from the incumbent Kumo, and was trading back down lower, in line with what Stochastic readings which are peaking and heading lower. All these entrench the bearish sentiment seen from price action and affirms, rather than invalidate the breakout of 0.8465 that happened on Tuesday.
However, bulls received aid from their Australia neighbors, who released their own stronger than expected employment numbers, driving AUD/USD dollar higher and pushed NZD/USD along as well. Bulls of NZD/USD would be glad to receive the second wind, but 0.8465 resistance remain stubborn though price has broken away from the Kumo now, which may allow price to retest 0.8465 once more. The possibility will always remain unless price start to head lower and break into the Kumo. But given current new development, Kumo can be expected to provide some buoyancy in price especially if 0.842 remains intact.
Daily Chart shows price entering back into the Kumo after attempting a breakout yesterday. 0.848 remains the level to beat in order to invalidate the bearish pressure on the Daily Chart, and given the uncertainty nature while trading within Kumo, a test towards 0.848 is possible despite Stochastic readings still remaining bearish. It is also interesting to note that the low of yesterday was around April lows, which is an affirmation of the rally from 14th Mar lows. Should price manage to break 0.848, bullish acceleration towards the rising Channel may occur, and the break of the descending trendline confluence with Kumo Senkou Span A may happen.
The question now we need to ask is this - is the Australia Employment data enough to change all the analysis of NZD/USD that was discussed earlier? Without AUD/USD push, it is highly likely that price would have continued downwards as technicals and fundamentals appeared to have lined up perfectly. The push from AUD/USD may have changed the short-term technical outlook, but the longer term outlook remains the same (0.848 was the level to beat the moment NZD/USD rallied on the employment numbers). Continue to keep a lookout on price around 0.8465, and let the market show us where it wants to go.
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