The New Zealand Dollar (NZD) rose after a slow start due to weak Q3 labor data. This data revealed a drop in employment, leading investors to expect a rate cut from the Reserve Bank of New Zealand (RBNZ) in November. In Q3, there was no growth in employment, down from a -0.2% in Q2, missing the expected 0.1%. The unemployment rate ticked up 0.1 percentage points to 5.3%, the highest it’s been since late 2016. The participation rate also dipped by 0.2 points to 70.3%.

Private Wages and Upcoming RBNZ Decision

Private wages stayed in line with the forecasts at 0.5% in Q3, down from 0.6% in Q2. The RBNZ’s policy decision on November 26 is expected to include a 25 basis points cut, bringing the rate down to 2.25%. The swaps market suggests the policy rate could drop to between 2.00% and 2.25% over the next six months. This change aligns with the RBNZ’s lower neutral range estimate. However, strong global economic activity is helping to support the NZD despite the expectation of an easier RBNZ policy. Given the weak Q3 labor data, the Reserve Bank of New Zealand is likely to cut interest rates this month. The market has already factored in a 25 basis point cut on November 26, reducing the policy rate to 2.25%. This expectation led to a quick recovery in the NZD after its initial decline.

RBNZ Forward Guidance and Global Economic Outlook

With the rate cut almost certain, the real focus will be on the RBNZ’s forward guidance. There are opportunities to trade this event using options; any indication that this cut is a “one and done” could boost the Kiwi dollar sharply. On the other hand, a more cautious tone hinting at more cuts into 2026 could weaken the currency. The NZD’s decline is being held back by strong global economic activity. For example, the Global Dairy Trade Price Index, an important indicator for New Zealand’s key export, increased by 4.2% in the last month, reflecting solid international demand. The latest IMF report projects steady global GDP growth of 2.9% for the coming year, supporting this trend. Additionally, we need to pay attention to the growing policy differences among major central banks. The US Federal Reserve recently held its benchmark rate at 5.50% with a hawkish outlook. This widening gap in interest rates may limit significant gains for the NZD against the US dollar in the coming weeks. Create your live VT Markets account and start trading now.

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