NZD/USD: Trading the New Zealand Employment Report

Employment in New Zealand is projected to increase 0.6% in the first-quarter after contracting 0.5% during the last three-months of 2010, and the rebound in the labor market should spark a bullish reaction in the high-yielding currency as the region skirts a double-dip recession.

Trading the News: New Zealand Employment Change

What's Expected:

Time of release: 05/04/2011 22:45 GMT, 18:45 EST

Primary Pair Impact:NZDUSD

Expected: 0.6%

Previous: -0.5%

DailyFX Forecast: -0.1% to 0.3%

Why Is This Event Important:

Employment in New Zealand is projected to increase 0.6% in the first-quarter after contracting 0.5% during the last three-months of 2010, and the rebound in the labor market should spark a bullish reaction in the high-yielding currency as the region skirts a double-dip recession. However, the neutral stance held by the central bank will certainly limit the scope of seeing a break above 0.8200, and the Reserve Bank of New Zealandmay keep the cash rate at 2.50% for most of 2011 as it expects higher energy prices paired with the marked appreciation in the local currency to have a ‘dampening effect' on economic activity. In turn, the NZD/USD may be carving out a top coming into May, and the exchange rate may pare the rally carried over from back in March as interest rate expectations falter.

Recent Economic Developments

The Upside

Release	Expected	Actual
Trade Balance (JAN)	200M	464M
NBNZ Business Confidence (APR)	--	14.2
GDP (4Q)	0.1%	0.2%

The Downside

Release	Expected	Actual
Credit Card Spending s.a. (MoM) (MAR)	--	-1.6%
Westpac NZ Consumer Confidence (1Q)	--	97.9
Retail Sales (DEC)	-0.4%	-1.1%

Firms in New Zealand may increase their willingness to hire additional employees as the region continues to benefit from the expansion in global trade, and the rebound in business confidence could translate into a stronger labor market following the faster pace of economic expansion in the fourth quarter. However, as household consumption wanes, the ongoing weakness in the private sector may encourage businesses to keep a lid on employment, and a dismal labor report could ultimately spark a near-term correction in the NZD/USD as the exchange rate struggles to hold above 0.8100. As the relative strength index falls back from overbought territory, the kiwi-dollar may continue to pare the advance from the previous month, which could lead to a test of 0.7800 for near-term support.

Potential Price Targets For The Release

How To Trade This Event Risk

Expectations for a rebound in employment certainly encourage a bullish outlook for the kiwi, and price action subsequent to the report could pave the way for a long New Zealand dollar trade as growth prospects improve. Therefore, if labor demands increase by 0.6% or greater in the first-quarter, we will need to see a green, five-minute candle following the release to generate a buy entry on two-lots of NZD/USD. Once these conditions are met, we will set the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will establish our first target. The second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade reaches its mark in order to preserve our profits.

In contrast, the aftermath of the devastating earthquake in Christchurch could certainly produce a dismal labor report as the natural disaster disrupts the economic recovery, and businesses may scale back on hiring throughout the first-half of the year as private sector consumption falters. As a result, if employment expands less than 0.3% or unexpectedly contracts during the first three-months of 2011, we will carry out the same setup for a short kiwi-dollar trade as the long position laid out above, just in reverse.

Impact the New Zealand Employment report has had over the NZD during the last quarter

Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event )	Pips Change (End of Day post event)
4Q 2010	2/02/2011 21:45 GMT	0.2%	-0.5%	-50	-46

4Q 2010 New Zealand Employment Change

Employment in New Zealand surprisingly slipped 0.5% during the last three-months of 2010 after expanding a revised 1.1% in the third-quarter, while the jobless rate advanced to an annualized 6.8% from 6.4% during the same period. A deeper look at the report showed full-time positions increased 0.3% following the 0.5% expansion during the three-months through September, while part-time jobs slipped 2.8%, erasing the 2.4% seen during the previous period. The unexpected drop in employment paired with the economic contraction in the third quarter should lead the Reserve Bank of New Zealand to uphold its current policy stance throughout the first-half of the year, and the central bank may retain a dovish outlook for monetary policy as it aims to balance the risks for the region. Currency traders certainly showed a bearish New Zealand dollar reaction to the employment report, with the NZD/USD working its way back below 0.7700, but we saw the pair recoup some of the losses as it ended the day at 0.7730.

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To discuss this report contact David Song, Currency Analyst: dsong@dailyfx.com