The Kiwi dollar attempted a short-lived rally above 0.7700 USD after robust employment data confirmed the resilience of New Zealand labor market and fueled speculation that RBNZ may be forced to abandon its dovish inflationary stance.
Headlines
Unemployment Rate Drops to Record-Low of 3.6% in Q2
New Zealand?s labor market remained tight during the first half of the year, as Q2 unemployment rate declined to an all-time low of 3.6 percent and the metric for Q1 was revised downwards to 3.7 percent. Quarterly labor force participation rate surged to 68.6 percent, a record-high since the inception of the data series by Statistics New Zealand. Continued strength of domestic employment may manifest into wage growth and subsequently lead to increased consumer spending, fueling inflationary concerns.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aN2ek9IbGZ7o
Source: Bloomberg
Confidence among Real Estate Sector Dips As Interest Rates Escalate
Pessimism prevails among businesses in the residential real estate sector as the effects of RBNZ?s interest rate hikes percolate through the economy. A Bank of New Zealand confidence survey, taken after the latest July 26th OCR hike, suggested that a net 39 percent of participants expected poor business conditions over the next 12 months. Demand for real estate will likely take a hit from escalating mortgage rates and incidences of decline in residential property sales are already being reported.
http://www.stuff.co.nz/4157646a13.html
Source: Stuff.co.nz
Residential Property Market Shows Signs of Slowdown
New Zealand?s over-heated housing sector - a perennial threat to the Reserve Bank?s attempt to curtail inflationary pressure - may finally show signs of a slowdown. A monthly report by the Real Estate Institute of New Zealand indicated that the annual growth rate of house prices slowed down to 10.4 percent in July, down from 12.09 percent in June.
http://www.stuff.co.nz/4158777a13.html
Source: Stuff.co.nz
Market Activity
Currency Market - NZD:
The Kiwi dollar attempted a short-lived rally above 0.7700 USD after robust employment data confirmed the resilience of New Zealand labor market and fueled speculation that RBNZ may be forced to abandon its dovish inflationary stance. However, evidence for the global reach of the US credit market scare came today after a surge in money market rates led to a $130 billion fine-tuning operation by the ECB and a $24 billion addition to US reserves by the Fed. The news sent carry trades reeling and took the NZDUSD pair down with it to test the 0.7550 USD level. Price action for the AUDNZD pair remained choppy, though the Kiwi is expected to lose further ground against its trans-Tasman partner after RBA maintained a hawkish tone despite raising interest rates to an 11-year high of 6.5 percent.
[I]NZDUSD (Daily Chart)
Prepared by DailyFX Research Team
Source: Bloomberg[/I]
Equity Market - NZSX-50:
New Zealand?s equity markets took their cue from the second consecutive session of gains for the US Dow Jones Industrial Average and S&P 500 on Wednesday. The benchmark NZSX-50 index closed at 4160.43, up 1 percent or 43.58 points, on turnover worth NZ $150.4 million. Gains outnumbered losses 54 to 39. Notable among winners was Fletcher Building, as the shares of the construction giant climbed 29 cents to NZ $1247. The gains came as a surprise since Fletcher stock dropped 42 cents Tuesday after reporting a record 28 percent annual profit.
Bears are likely to regain control of global equity markets as the gravity of the US credit crunch manifested in an unprecedented EUR 98.4 billion “fine-tuning” operation by the European Central Bank. Since New Zealand?s economy is considered riskier than its global counterparts, the NZSX-50 index may spiral downwards from the dead cat bounce seen in Thursday?s session.
[I]NZSX-50 Index (Daily Chart)
Prepared by DailyFX Research Team
Source: Bloomberg
[/I]
Fixed-Income Market - 10-year Government Bonds:
Amid heightened risk-aversion, investor interest has gravitated towards conservative government debt, but the demand for low-risk assets is likely to spike after both the US Federal Reserve and ECB took unprecedented measures to curtail the liquidity squeeze. Yields on New Zealand?s benchmark 10-year notes remained unchanged at 6.563 percent.
[I]10-year Government Bond Yields (Daily Chart)
Prepared by DailyFX Research Team
Source: Bloomberg[/I]