Last week was a dramatic one on both sides of the Tasman, featuring a surprise cut by the Reserve Bank of Australia, a surprise (ex-post) announcement of currency intervention by the RBNZ, and surprisingly positive labour market reports out of both NZ and Australia. The NZD/AUD swung accordingly but is now roughly back where it started. In our own view, none of these developments help resolve the tug-of-war between strong growth and low inflation that is currently such a feature of New Zealand’s economy – if anything, the RBA move and the New Zealand labour market data intensify it.
The strong growth story was bolstered by Thursday’s Household Labour Force Survey. The unemployment rate fell from 6.8% to 6.2% (the lowest since early 2010), and employment rose by 38,000 people, mostly in full-time jobs. These numbers remove any residual doubt that the economy is picking up steam. Our overall assessment remains that the labour market is improving modestly after trending broadly sideways over the last year. The HLFS had been much weaker than other labour market indicators for a while and we strongly suspect some of the latest improvement is catch-up. (Tuesday’s Quarterly Employment Survey also showed positive, but unspectacular jobs growth.)
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