New Zealand job market has improved greatly in Q3. Headline employment number increased by 27,000 jobs Q/Q, the most since 2007. This 1.2% gain is more than twice that of economist forecast of 0.5%. The gains are even more significant on a Y/Y basis, coming in at 2.4% vs 1.6% expected – a good sign that the economy is much healthier than before. Perhaps the best indication of the strong labor market is the fact that participation rate has increased from 68.1% to 68.6%, yet unemployment rate has fallen to 6.2%
This will be good news for RBNZ Governor Wheeler, who has mostly resisted urges to hike rates in 2013 even though that would have been the most effective tool to combat the runaway hosing inflation. With labor market looking healthy and business confidence remaining close to a 14 year high, Wheeler will definitely be tempted raise rates soon as the current economy will be able to absorb the impact of a higher NZD better than before. Market agrees with this analysis, as interest swaps pricing in a more than 65% probability of a rate hike by 2014 March, a huge jump from yesterday’s 51%.
In comparison, the immediate rally seen in NZD/USD appears to be much more muted. Prices rallied less than 40 pips in the 5 mins that followed the announcement, with slight pullback following after. Prices did manage to reach a high of 0.8378 in the end, but since then it has been mostly bearish one way street, with prices pushing consecutive lower lows on the hourly chart. The only saving grace for bulls is that all the hourly candles that followed have very short body with relatively longer upper shadow – showing that bulls are still trying their best to push higher but is ultimately overpowered by bears.
Stochastic readings agree, with a fresh bearish cycle signal coming out which suggest that current pullback may be able to last longer. However, Channel Top may still provide some support, and price should ideally break into the Channel once again to open up Channel Bottom as a plausible bearish target which will align with the bearish cycle signal indicated by Stochastic.
Direction on the weekly chart is mixed. Stochastic suggest that we are still in the midst of a bearish cycle, suggesting that the recent bearish rejection from the 0.845 – 0.85 resistance zone will be able to head lower, potentially hitting the key 0.81 support. However, the rebound off the 0.82 support opens up a move towards the aforementioned resistance zone again. Considering that NZD/USD has a tendency to trade sideways in the past 1 year, traders will still need further confirmation to determine directionality of NZD/USD moving forward.