The New Zealand dollar was dumped after a weaker than expected employment report for the December quarter caused economists to rethink growth forecasts.
The unemployment rate rose to 6.8 per cent in the December quarter from 6.4 per cent in the three months to September. This is higher than the6.5 per cent to 6.6 per cent the market was expecting. Seasonally adjusted employment fell 0.5 per cent in the quarter when the market was positioned for 0.2 per cent growth.
The NZ dollar fell sharply on the data, from around US77.75c when the figures came out at 10.45am to US77.25c by 11.30am. It was at US77.17c at 5pm, down from US78.16c at 5pm yesterday.
"Despite a decrease in labour force participation, the large decline in employment drove the unemployment rate back up to 6.8 per cent," Deutsche Bank said.
"We think that recent data means that some consideration should be given to reversing last year's policy tightening to provide greater assurance that a return to growth is close at hand especially with the Government intent on tightening fiscal policy settings at this year's budget, a policy we view as sensible."
Some analysts had tweaked their forecasts for the unemployment rate higher this week after the quarterly employment survey was bearish, said Westpac senior market strategist Imre Speizer. But the numbers were even weaker than the recently reassessed expectation.
Moreover, they suggested the economy was weaker than expected in the December quarter.
"Economists will look at forecasts for growth for the fourth quarter and they might revise it down a bit. We don't think it will go negative but people may push forecasts down to a 0.2 per cent or 0.3 per cent rise," Mr Speizer said.
But US dollar direction would still be a factor in setting NZ dollar direction.
The NZ dollar also fell to 0.5594 euro at 5pm and 0.5642 at the same time yesterday and to A76.40c from A77.14c at 5pm yesterday. It fell to 62.96 yen from 63.65 yen yesterday.
The trade weighted index slipped to 68.25 from 68.99 yesterday.
