SYDNEY: The New Zealand dollar found fresh support on Wednesday as an upbeat jobs report reinforced the case for a super-sized increase in interest rates this month that has left the Australian dollar lagging behind.

The kiwi dollar was holding firm at $0.5844, after touching a five-week top of $0.5903 overnight.

Support lies around $0.5776. The Aussie was flat at $0.6392 after an overnight bounce to $0.6464. It has support around $0.6368.

The New Zealand data showed employment rose a surprisingly strong 1.3% in the third quarter and the jobless rate only held at 3.3% because of a large jump in people looking for work.

The strength of labour demand showed in wage data where average weekly earnings grew at an annual pace of 7.9%, with the private sector seeing gains of 8.6%.

Officials at the Reserve Bank of New Zealand (RBNZ) said the labour market was very hot and demand needed to be cooled, though they also noted the risks for the global economy were on the downside.

“We think wages growth will be particularly concerning for the RBNZ given the strength in non-tradable inflation, further raising the risk of a wage-price spiral,” said Andrew Boak, an economist at Goldman Sachs.

Australia, NZ dollars hover near multi-week highs on central bank pivot hopes

“We continue to expect the RBNZ to tighten policy by 75bp at the November meeting and by 50bp in February, and now expect another 25bp hike in April 2023,” he added.

“We view the risks as skewed towards more aggressive hikes in 1Q2023.” Markets are also leaning toward a hike of 75 basis points at the RBNZ’s Nov. 23 meeting and see rates peaking around 5.25% by the middle of next year.

The hawkish outlook contrasts with the Reserve Bank of Australia (RBA) which stuck with a modest quarter-point hike to 2.85% on Tuesday, warning about economic uncertainty at home and abroad. Markets expect another 25 basis points in December and see rates topping around 4.10%.

“The RBA seems comfortable to implement smaller, but more regular, interest rate rises than other central banks,” said Ivan Colhoun, chief economist at NAB corporate banking.

“That likely also reflects the RBA’s desire to achieve both the return of inflation to target, while keeping the economy on an even keel and therefore limiting the rise in the unemployment rate.” NAB forecasts further increases of 25bps in December, February and March.

The divergence with New Zealand has seen the Aussie fall sharply on the kiwi in recent weeks to hit a five-month low of NZ$1.0909 overnight.

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