NZ Growth Excels in Q2, Aussie Employment Confuses

Australian employment throws a curve ball

To expect a directional move from a related market, it’s more likely to be a clean move if the data set leans for or against the economy the market represents. Yet today’s employment report is about as clear as mud upon initial inspection.

Unemployment fell to 4.5% from 4.6% and below 4.9% expected. Yet -146.3k jobs were lost (68k of which were full-time) and the participation rate also fell. So what gives? As ABS explain in their report, employment and hours worked were down due to the extended lockdowns in NSW. Yet the combination of falling employment and unemployment across several states weighed down on the participation rate.  

And the confusion can be seen on the Australian dollar, which remained relatively unchanged for the session with a 17-pip rise before moving back to the open. AUD/NZD remains below 1.3000 (just) having breached the milestone level yesterday. Yet price action looks extended to the downside. Moreover, its inability to move lower on bad Australian and good New Zealand data raises a red flag for bears (so we’re now on the lookout for bullish mean reversion).

New Zealand’s Growth flies in Q2

The New Zealand dollar spiked higher today following a stronger than expected GDP print in Q2. Rising 17.4% YoY, it now sits at a record high and above the 16.4% expected, and the quarterly print rose 2.8% (up from 1.6%) to show this is not merely a basing effect that can crop up in annualised figures.

For most of this month we have watched the 1-month OIS (overnight index swap) rise as move closer to pricing in a hike at their next meeting. Ahead of today’s print it rose to a 34% probability of a hike, the 2-month suggests an 88% chance of a 25-bps hike and the 3-month has fully priced in a hike. And we may find those odds have increased given today’s strong growth figures.

However, we warrant caution here as it needs to be remembered that Q2 data does not include the lockdowns which will surely weigh on Q3’s data. But with that said, New Zealand were quick to lock down and partially reopen most of the country, and since tamed the latest outbreak. And as the lockdown was the only reason given for RBNZ not raising rates at their last meeting, we will closely monitor any comments from RBNZ’s governor over the coming day/s to see if a hike may actually be back on the cards.

Canadian Inflation soars ahead of elections

And staying with commodity-link economies, Canada released a strong inflation report overnight, although not everyone will be pleased. Consumer prices in Canada hit an 18-year high, just days ahead of the Canadian election which provides the opposition parties with more ammunition to use against their sitting Prime Minister, Justin Trudeau. Many are angered that inflation has been broadly higher with rising house prices adding salt to the wound.

Politics aside, broad CPI rose to its highest level since March 2003. However, with energy and food removed it rose just 0.3% MoM, down from 0.6%. The Canadian dollar was the strongest currency of the session, and also helped higher by strong oil prices. WTI closed above 72.0 and looks set to challenge the 74.23 high should bulls retain control.