Traders of the Kiwi will be pleased to hear, or not, that 4th quarter labor data came in better than expected showing further tightening in the market. This data comes a day before the RBNZ meeting, a meeting at which no policy change is expected. What is expected is a market moving statement from the bank and one that, now, could point to policy change in the not too distant future.
Core inflation has cooled down to 1.75% from recent highs above 2% but is expected to trend above 2% in the coming year, eventually forcing the banks hand. Today’s labor data is consistent with this outlook showing tightening across all major components.
The Employment Change Index rose 0.5% and better than expected. It shows a slowing of growth from the previous quarter but not as much as expected and is a positive for the economy. The Labor Cost Index stood unchanged at 1.9% in the 4th quarter showing steady increases in the costs of business. The Labor Force Participation Rate rose more than expected to 71% showing increased confidence among workers and expansion within the labor market leading to overall declines in unemployment. The Unemployment Rate fell to 4.5%, shedding 0.2% versus the expected gain of 0.1%.
The Kiwi held steady versus the euro as outlook in both regions brightens. The ECB releases its quarterly Economic Forecast and is expecting growth to continue. The problem is that while estimates have been rising forward outlook remains tepid. GDP is estimated at 2.4% in 2017, better than the 2.0% or so economists had been expecting, but growth is also expected to slow in 2018 and 2019 to 2.3% and 2.0%.
The EUR/NZD created a small spinning top candle in the early Wednesday session and is sitting on support at the short term moving average.
The RBNZ statement is a likely mover but direction is sketchy. The indicators are mixed for the EUR/NZD, consistent with range bound trading, and give little help. A break below the moving average would be bearish, a bounce bullish, but neither are likely to break the long term trading range. The top is near 1.7400 and bottom is near 1.6500, both of which are targets once the move begins.
The NZD/USD has been in uptrend over the past few months as RBNZ outlook firms and FOMC outlook moderates. The pair is now trading near long term highs and bouncing from a near term support. Support is the short term moving average, near 0.7293, and a likely pivot point for traders over the next day or so.
The indicators are a bit mixed but generally consistent with a bounce from support within an uptrend and trend following entry point. Stochastic is already firing its signal, MACD has yet to confirm but if completed a continuation of uptrend could be expected. Until then support is the MA and resistance target is the recent high near 0.7400.
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