The labor market in New Zealand is very tight, but today's data showed signs of cooling, as Unemployment rose to 3.6% and the highest in two years. Participation rate increased to historic highs (72.4%), which can help lower the temperature and bring the labor market into better balance. Wage costs stabilized, but remained high, since the Labor Cost Index stayed at 4.3% y/y and the highest since 1982 when the series began.
In a watershed decision, the Reserve Bank of New Zealand (RBNZ) had kept rates unchanged last month, after a relentless tightening cycle, which produced 525 basis points of hikes in twelve straight meetings. What's more, the most recent forecasts form May, imply that the bank has reached its terminal rate with the current 5.5%. 
The hold was a result of the weakening economy, as the country has entered a technical recession with two straight quarters of contraction and the fact that inflation has been coming down. Since that policy decision, inflation moderated further, to 6% in Q2.
Today's employment data could help policymakers stay in the sidelines again at the upcoming meeting later this month and abide by their own projections. NZD/USD dropped as a result, extending yesterday's losses. This makes it vulnerable to the 2023 lows (0.5984), although fresh catalyst would be needed for a breach.
On the other hand, the labor market is still strong, inflation far from the 1-3% target and RBNZ will produce updated forecasts in a few weeks. The NZD/USD fall seems a bit stretched and we could see an effort to return above the EMA200 (at around 0.6200), but does not inspire confidence for a bigger recovery that would challenge 0.6412.
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.