The latest New Zealand labor data supported the prospect of further interest rate hikes, which lifted the NZDUSD rate.

The New Zealand dollar strengthened rapidly against other major currencies on Wednesday (February 7). NZD/USD was also lifted to the 0.6180s price range. This is related to the latest New Zealand labour data which propels the prospect of another RNBZ rate hike.


The data set in New Zealand's labour report this morning was very good, suggesting wage inflationary pressures may be stronger than previously thought. The unemployment rate stood at 4.0% in Q4/2023, whereas the consensus expected an increase from 3.9% to 4.3%. The Labor Cost Index grew by 1.0% (quarter-over-quarter), whereas the consensus only expected 0.8% (quarter-over-quarter).

These figures eroded the prospects of a New Zealand interest rate cut in the coming months. Instead, there was an increased chance from around 5% to 20% for the prospect of an RBNZ rate hike.

"All up, loosening in the labour market should support a moderation in domestic inflation over 2024, but progress has been a little slower than we and the RBNZ had anticipated," says Henry Russell, an economist at ANZ Bank.

Experts from ANZ Bank signalled that there is a possibility of the Reserve Bank of New Zealand (RBNZ) raising interest rates by another 25 basis points in its policy meeting this month. In addition, the market will be paying more attention to RBNZ Governor Adrian Orr's speech on February 16. Orr will likely use the opportunity to express a more hawkish view in his efforts to curb inflation.

While other major central banks are preparing to cut their respective interest rates, the RBNZ will likely raise rates. The gap could support the New Zealand dollar rate as long as no other variables worsen market sentiment - for example, China's economic turmoil and the global geopolitical climate.