Jobless rate in New Zealand at 11-year peak; kiwi softens as rate-hike speculation cools

Since the data was published, the kiwi has moved steadily downward, a sign that investors are cutting the odds of a December rate hike rather than overreacting to one headline. Two-year swap rates falling also points to that conclusion. With the RBA still in hawkish mode and the policy gap widening, NZD/AUD is at risk of further losses. The election is the next source of uncertainty: should Labour win, a restored dual mandate could be seen by markets as a reason for the RBNZ to tilt looser over time. Later this month, inflation expectations surveys will test whether the RBNZ's hawkish members still have a convincing argument.

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Earlier:

• New Zealand Q3 jobless rate 5.7% (forecast 5.5%, prior 5.6%)

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The data was a clean miss across the board, strengthening the case for the RBNZ to stay on hold and handing the opposition new material for the final days of the campaign.

Summary:

• The jobless rate reached 5.7% in the third quarter, its highest since 2015, with both economists and the RBNZ having expected 5.5%
• Total employment slipped 0.1% and the participation rate eased to 70.4%
• Private sector wage growth cooled to 0.4% over the quarter and 2.0% year on year
• The kiwi dropped, found support around $0.56 and later lost more ground; two-year swaps were down roughly 6 basis points
• Labour said the numbers amounted to a verdict on the government, while the finance minister told voters to stay with the plan
• A Labour win on Saturday would restore the RBNZ's dual mandate, the party has promised

Official figures published on Wednesday put New Zealand's unemployment rate at an 11-year high for the third quarter. The currency has since lost ground as investors consider the rate path and the election scheduled for Saturday.

Breaking it down, the jobless rate reached 5.7% in the three months to September, a peak last seen in 2015, according to Statistics New Zealand. The consensus from a Reuters poll of economists stood at 5.5%, matching the RBNZ's own forecast. Employment declined 0.1% from the prior quarter, compared with an expected 0.4% gain, and the participation rate fell to 70.4% against a forecast 70.7%.

Pay growth slowed as well. Private sector labour costs excluding overtime rose 0.4% in the quarter, after 0.7% previously, pulling the annual rate down to 2.0% from 2.1%.

The figures emerged near the end of a tight election race, Reuters reported, and an Ipsos poll this week put inflation and the cost of living at the top of the electorate's concerns. Labour's finance spokesperson Barbara Edmonds called the data a damning assessment of Prime Minister Christopher Luxon's economic leadership. Finance Minister Nicola Willis said the numbers demonstrated the effect of uncertainty and the need to continue with the government's plan, which she said was about rebuilding the economy.

Market participants took the data as lessening the need for the central bank to resume rate increases. The kiwi initially slipped, steadied near $0.56 and has since eased, Reuters said. Two-year swap rates dropped roughly 6 basis points to near 3.78%.

Last week's decision by the RBNZ to keep the official cash rate at 2.75% took markets by surprise. The bank said it needed more time to gauge the impact of two earlier hikes, while saying it still saw further increases as likely. A local bank's economists said the softening jobs market made that stance appear increasingly justified, and additional hikes might not be required if the weakness continues.

The election introduces another policy question. Labour has said it would return the RBNZ to a dual mandate of price stability and maximum sustainable employment, replacing the existing inflation-only target.