NZD/USD Under Pressure From Negative GDT and Week Job Report

The New Zealand Dollar (NZD) is under further pressure from a highly negative Global Dairy Trade (GDT) and a week job report.

Following a negative GDT result that saw bearish selling mount of -7.4%, the NZD fell sharply.

This furthers the decline in prices for dairy products, New Zealand’s key export.

"The NZX Dairy Futures market predicted prices would fall at the November 3 event, but the fall in GDT prices was larger than anticipated," states New Zealand-based AgriHQ dairy analyst Susan Kilsby.

However, Kilsby adds, "There is ample supply of dairy product available in the global market and buyers generally have plenty of stock on hand so there is little urgency for them to secure additional stock. The reduction in milk being produced in New Zealand is being offset by European dairy farmers producing more milk. Until global milk supplies drops further, prices are likely to remain subdued."

The New Zealand labour market data for the September quarter presented more bad news for the NZ dollar.

Employment fell by 0.4%, or 11,000. This is contradictory to the 0.4 % anticipated increase. This is the first recorded downturn since 2012’s June quarter.

The unemployment rate up-ticked to 6.0% from 5.9%.

At first glance, this is in line with previous expectations but that number is inflated by a plunge in labour market participation. Labour costs rose to 0.4%, against the 0.5% expected.

The inflation rate stands at 0.4%.

Diane Ramsay, labour market and households statistics manager at Statistics New Zealand states:

“Until recently, the labour market has been keeping pace with New Zealand’s population growth, but in the past three months this has changed. This quarter also had the largest increase in the number of people outside the labour force since the March 2009 quarter.”

Paul Dales, chief economist at Capital Economics predicts a more than likely rate cut to 2.5% in December by the Reserve Bank of New Zealand as a result of the “stark” deterioration in this third quarter job report.

Dales is of the view that rates will fall all the way to 2.00%.

Currently, the NZD is trading around the 0.6637 mark against the USD. Analysts predict the NZD will experience a free-fall to the 0.6475 mark, coinciding with a 61.8% retracement level.