New Zealand dollar spikes as jobs boom augurs Aug rate hike

SYDNEY: The New Zealand dollar bolted higher on Wednesday after super-strong jobs data cemented expectations for a hike in interest rates this month as policy makers try to cool a sizzling economy.

The kiwi swung up to $0.7046, a gain of 1% for the week so far, before meeting stiff chart resistance around $0.7050. A break would open the way to the July peak around $0.7105.

The Australian dollar rose in sympathy to reach $0.7397 , but has so far been unable to breach resistance at $0.7415.

New Zealand dollar kneecapped as central bank talks rate cuts

The kiwi took off when data showed New Zealand's jobless rate dropped sharply to 4.0% last quarter, well under market forecasts of 4.5%, while employment jumped 0.9%.

Wages also topped expectations as closed borders restricted the supply of labour even as activity has surged, particularly in the booming housing market.

"Today's figures underscore that the domestic economy is running hot, and no longer warrants the degree of monetary stimulus that's currently in place," said Michael Gordon, Westpac's acting chief economist for NZ.

"It reinforces the likelihood of an August OCR (rate) hike." The data comes just a day after the Reserve Bank of New Zealand (RBNZ) said it was considering new ways to tighten home loan standards to restrain the housing market.

Indeed, Governor Adrian Orr emphasised that interest rate policy needed to go hand in hand with macro prudential rules, and specifically noted that the RBNZ would address this issue at its policy meeting on Aug. 18.

"The Reserve Bank's Monetary Policy Committee needs to think about when and how we would return interest rates to more normal levels, which are neither unnecessarily giving the economy a push forward nor holding it back," Orr said.

The market took that as virtual confirmation rates would rise from the current 0.25% at the policy meeting. Overnight indexed swaps imply a 100% chance of a move to 0.5% and a real possibility rates could hit 1% by Christmas.

Two-year bond yields shot up to 0.8% and two-year swap rates reached 1.225% - a rise of 20 basis points in just two sessions.

A hike this month would make the RBNZ the first developed world central bank to tighten, and put it far ahead of the Reserve Bank of Australia (RBA) which is still talking of not moving until 2024.

Still, the RBA did surprise markets on Tuesday by pushing ahead with a tapering of its bond buying despite the economic toll of coronavirus lockdowns in the country.