Dollar dips below US70c, hit by surprise unemployment stat

Unemployment in New Zealand - the last five years. Seasonally adjusted unemployment rate. Source: Statistics NZ/ Herald Graphic.

The New Zealand dollar has fallen to below US70c today, after surprise jobs data showed unemployment rose to 7.3 per cent, its highest level since June 1999.

Statistics NZ said the number of unemployed New Zealanders kept climbing during the December quarter, jumping 18,000 to reach 168,000.

This is double the Labour Department forecast of a 9000 increase.

Statistics NZ says the increase in unemployment was mainly due to a rise in the number of people entering the labour force but unable to find work.

The New Zealand dollar initially fell from 70.8 USc to 70.1 USc on the news and has now fallen to 69.9 USc.

Westpac markets strategist Imre Speizer said today's surprise unemployment statistics would be a major test of the Kiwi dollar's strength.

"What [the employment statistics] have done is push [the Kiwi dollar] perilously close to this key 69 to 70 area," he said.

"It's really around the 70c mark that is the stronghold.

"So what we are seeing is buyers coming in when it gets down to around 70c, like at the moment."

He said that if the dollar pushed any lower buyers would stand back and wait for the dollar to get cheaper.

"Everybody is watching 70c, and you can't say it will or it won't break it, it's just a matter of watching whether there are more buyers or sellers around this level.

"We'll know by tomorrow morning when we come in, and if [the dollar] has broken clearly through [the 70c mark] then we'll be off to the races for a new area for the Kiwi, which will be the upper sixties."

He said if the dollar managed to hold above the 70c mark overnight it would be a clear sign that the dollar was strong and it would take "a lot to break it".

Speizer said the bulk of the reaction to the unemployment statistics had already happened, with the only Asian markets waking up to the news.

He said the speed with which the dollar bounced back after surprises like today's depended on whether the surprise was genuine.

"In this case there probably was. This was a very big surprise."

Youth unemployment was particularly marked during the past year, with the rate for those aged 15 to 24 rising 6.4 percentage points during the December quarter to reach 18.4 per cent. Statistics NZ says there were also marked differences in the unemployment rates by ethnic group.

Unemployment rate remains high for Maori at 15.4 per cent and Pacific people at 14 per cent.

The unemployment rate for the European ethnic group stands at 4.6 per cent.

ASB chief economist Nick Tuffley said working age population had increased slightly more than he had expected, and not enough jobs were being created to fill the gap.

"There seems to be enough [working age population growth] to push unemployment up," he said.

He said people who had "dropped out" of the workforce before were now "coming out of the woodwork" again and looking for jobs.

"That does mean that, going forward, a fair amount of people who are looking for work but aren't lucky enough to find it," he said.

Tuffley said the unemployment rate was likely to rise a bit further, possibly peaking at 7.5 per cent.

"I think we are fairly close to the peak, but the challenge going forward is that we do need to see some jobs being created to absorb these fresh people looking for work," he said.

Goldman Sachs JB Were economist Philip Borkin said that while employment growth was in-line with consensus expectations at 0.1 per cent (quarter on quarter) - the rise in the 'participation rate' meant unemployment rose to 7.3 per cent.

"In some regards, the magnitude of the rise in the unemployment rate does not quite stack up with the modest movements in employment and the participation rate," he said.
"However, given the historic stability in the unemployment rate, we place more weight on this."

"It is clear that the labour market remains soft," said Borkin. "While we suspect that Q4 marked the trough in job shedding, we envisage most of the early recovery in labour demand to be met by increased utilisation of the current workforce rather than outright hiring."

Borkin said that further rises in the unemployment rate looked likely.

The weakness in today's data "raised the real possibility" that the Reserve Bank would wait till beyond June to begin hiking the Official Cash Rate.

The Reserve Bank forecast an unemployment rate of 6.6 per cent for the December quarter.

- NZ HERALD STAFF