The Pound to New Zealand Dollar exchange rate (GBP/NZD) fell by around a cent to 1.9180 last night as traders reacted to a robust labour market report showing that Unemployment in New Zealand declined by -0.2% to 6.2% during the third quarter.
The impressive result saw the participation rate jump from 68.1% to 68.6% as employment improved by twice as much as forecast. The quarterly Employment Change indicator was predicted to rise by 0.6%, but the actual print came in at 1.2% thanks to some major construction projects in New Zealand’s two largest cities: Christchurch and Auckland.
ABS Bank Economist Jane Turner suggested that the Unemployment report could be a harbinger for enhanced growth in the Antipodean economy:
“This is consistent with the broader pick-up in consumer confidence and retail demand over the past year. Overall, the employment figures highlight the broadening nature of the economic recovery”.
The ‘Kiwi’ Dollar jumped in response to the dataset because traders took the positive news to mean that a rate hike from the Reserve Bank of New Zealand could be on the cards in early 2014.
Earlier in the day the Pound was subject to an intense rise in demand against the majority of its currency peers as investors reacted positively to a 16-year high Service Sector print of 62.5. The outstanding score, which smashed expectations of 60.0, is the best reading since May 1997 when Tony Blair first became the British Prime Minister.
The robust report reflected well on all aspects of Britain’s dominant Services Sector, which accounts for around 70% of UK GDP and is therefore an extremely important gauge of British economic performance. It was particularly encouraging to see that job creation in the Sector expanded at its fastest rate for 16 years, suggesting that the UK labour market could be set for a timely boost.
The Bank of England has linked its ultra-loose monetary policy to a dual mandate of inflation and Unemployment. Inflation has remained above target since 2009, and if Unemployment begins to fall as well it will become increasingly difficult for the BoE to avoid hiking rates sooner than initially projected.
Combining the 6-year high UK Construction PMI with the 16-year high Services PMI and the robust Manufacturing PMI print it appears as if the UK economy is set for an unheard of 1.3% quarterly expansion in the fourth quarter. If growth persists at these levels then speculation around a BoE rate hike will continue and demand for Sterling could soar.
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