How Will the NZDUSD React to the NZ Employment Data?


The NZ Employment data is due for release at 10.45 pm GMT. The consensus is for Employment change to come in at -2.0%, and for the Unemployment Rate to register at 5.6%. These figures represent an expectation of a slight worsening of the employment situation in New Zealand, as the economy comes to terms with the damage from the mostly-controlled, domestic coronavirus epidemic.

The Stats NZ Monthly EMployment Indicator (MEI) shows that 2053 jobs were filled in June, following an increase of 14,399 filled jobs in May. These two figures bettered the drop in filled jobs of 35,000 in April. As analysts at Westpac have pointed out, MEI is a successful tracker of the impact of the coronavirus pandemic on the domestic job market. 

The increase in the number of filled jobs is a pointer to how resilient the local economy has been. This is a testament to the decisiveness with which the New Zealand government handled the coronavirus outbreak. The graphs for active cases, new cases and deaths from the coronavirus for New Zealand have all flattened and have remained flat since the end of May. 

However, the economy has not seen significant employment growth in the last quarter. The sector has been propped up by the wage subsidy programme, supported by reduced pay from employers (as opposed to outright layoffs). The government’s wage subsidy program is due to end later this month, and this is when the employment market’s resilience will face its first real tests for the year.

Outlook for the NZDUSD

As a result of the wage subsidy and pay reduction programs by the government and private employers, the full picture of the employment situation may be masked. So if there is an increase in the Unemployment Rate beyond 7.0%, as well as a reduction in employment change that is more negative than -3.3%, this would be a market surprise that may be NZD-negative. Such an outlook would draw inspiration from the failure of last week’s weekly candle to attain the highs of December 2019/January 2020 to at 0.67403, despite the violation of the upper border of the descending channel. This failure swing could spur a move to the south that targets 0.64937, with 0.64187 and 0.62835 being the closest downside targets. This move must break below the 0.65858 support that is currently being challenged by this week’s candle before it can be actualized. 

On the flip side, an Unemployment Rate that is 4.0% or less, combined with an Employment Change that exceeds 2.0%, could be interpreted as being NZD-positive. However, the NZDUSD pair would then have to transcend the 0.67403 January 2020 high to form a higher high, which may be the catalyst for a move towards 0.69068. The 11 June 2018 high at 0.70541 remains a valid upside target, dependent on some strong momentum from the pair. 

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