WELLINGTON (Reuters) - New Zealand's unemployment rate picked up more than expected in the fourth quarter, moving off a decade low and sparking a sharp drop in the currency in a sign markets expect a more cautious turn in policy from the central bank when it meets next week.
The risk of an interest rate cut by the Reserve Bank of New Zealand (RBNZ) had increased over the last few months due to fading economic momentum in the face of slowing global growth and a months-long U.S.-China trade dispute.
The rising pressure on growth prompted Australia's central bank on Wednesday to open the door to a possible interest rate cut, barely a week after the Federal Reserve had all but abandoned plans for more tightening this year for similar reasons.
New Zealand's unemployment in the fourth quarter rose to 4.3 percent compared to the upwardly revised 4.0 percent in the last quarter, official data showed on Thursday. Economists polled by Reuters had predicted a jobless rate of 4.1 percent.
ANZ bank senior economist Liz Kendall said the RBNZ will eventually need to cut the OCR, but the move to a more overtly dovish stance may take some time to unfold.
"Today’s data will add to a more cautious tone from the RBNZ next week, on the back of a softer outlook for activity, clear global growth risks and emerging economic headwinds, even if we don’t see a significant change in their central forecasts," Kendall said.
The Overnight Index Swap market was pricing in a 44 percent chance of an easing in monetary policy later this year.
The New Zealand dollar fell a sharp 1.7 percent to $0.6775 after the data, settling around a two-week low.
Yields on two-year New Zealand bonds were also off 7 basis points to 1.67 percent while 10-year bond yields skidded toward historic lows to 2.173 bps.
'BACK IN LINE'
Economic growth in New Zealand slumped to its slowest pace in nearly five years in the third quarter, and the government has trimmed its growth forecast for the year.
ANZ's Kendall said the labour data has been volatile of late, and anything in the range of 3.8-4.4 percent was not surprising.
The employment growth rate in the quarter was 0.1 percent, down from 1.1 percent in the previous quarter. Economists had predicted employment to grow 0.3 percent.
Statistics NZ said some high-level data was adjusted in the latest quarter to improve accuracy, which included figures for employed people, those not in the labour force, and hours worked.
Without the adjustment, the unemployment rate would have been 4.4 percent rather than 4.3 percent, Statistics New Zealand labour market and household statistics senior manager Jason Attewell said in a statement.
“The employment rate is now back in line with rates between the September 2017 and June 2018 quarters,” Attewell said.
The labour participation rate fell to 70.9 percent from 71.1 percent, the data showed.
Annual wage growth was at 2.0 percent, compared to 1.9 percent in the previous quarter. Quarterly wage growth was unchanged from the previous quarter at 0.5 percent.
(Reporting by Praveen Menon and Charlotte Greenfield, Editing by James Dalgleish & Shri Navaratnam)
