Image © Adobe Images
Solid domestic labour market data and rising stocks boost NZD.
Official data revealed midweek that New Zealand's unemployment rate rose to 5.2% in the second quarter, which was less than expected (5.3%).
This was after employment shrank by 0.1% on a quarterly basis in the second quarter, and the participation rate slid to 70.5% from 70.8%.
"Stable labour supply met a small contraction in labour demand. This was marginally lower than our expectation of 5.3% but in line with the May MPS forecast," says Miles Workman, an economist at ANZ.
To be sure, these are hardly stellar stats, but that the unemployment rate rose by less than expected offered the kind of surprise that helped the New Zealand Dollar rise to sit atop the daily performance board:
NZD outperformance also comes alongside the broader lift in global equity markets that signifies resilient sentiment amongst investors.
The currency is closely aligned to sentiment, meaning it rises when volatility is low and equities are rising. European shares followed the lead set by Asia and extended gains on Wednesday as investors bought into recent market weakness, brushing aside fresh U.S. tariff threats and digesting a mixed batch of corporate earnings.
"Some of the uncertainty related to US trade policy should recede as more trade deals have been reached. The damage caused by tariff uncertainty appears to be less severe than initially anticipated," says a monthly analyst note from Julius Baer, the private Swiss bank.
Shoring up sentiment is a growing belief that the Federal Reserve will lower interest rates again in September, which could spell the start of another round of easing.
Easier monetary policy is typically stimulatory of U.S. and global assets, which can in turn help currencies such as the New Zealand Dollar which does best in times of improving market conditions.
"With increased economic headwinds, the Fed will resume its rate-cutting cycle in September, lowering its policy rate to less restrictive levels," says Julius Baer.