WELLINGTON: The New Zealand dollar has dropped by US1c after labour data out this morning showed wage growth was a little less than expected, adding weight to the view that the Reserve Bank of NZ may move to cut its official cash rate sometime this year.
By late afternoon, the Kiwi was trading at around US$74.90c, having earlier dipped as low as US74.50c, compared with US75.50c just before the data’s release at 10.45am.
Bank of New Zealand currency strategist Raiko Shareef said lower than expected wage price inflation was the main reason behind the currency’s fall.
“In that light, the market has moved to price in a greater chance of the Reserve Bank being forced to cut rates this year, since they have signalled that they are looking very closely at price and wage inflation,” he said.Shareef said that if wage inflation settled at lower levels, a cut in the official cash rate would become appropriate.”We still don’t think that it will happen. You would really need to see wage price inflation soften further and settle at lower levels. That’s quite a high hurdle and it would take time to happen.”
The labour data showed New Zealand’s wage inflation slowed in the first three months of the year as an expanding labour market soaked up growing capacity, helping lift participation to a new record.The labour cost index shows private sector wages rose 0.3 per cent in the first quarter, slowing from a 0.5 per cent pace in December, according to Statistics New Zealand.
That’s the slowest pace since the March 2014 quarter. Annual wage inflation for the private sector was unchanged at 1.8 per cent.Including the public sector, total labour costs rose 0.3 per cent in the quarter, slowing from 0.5 per cent three months earlier, for an annual increase at 1.7 per cent.
The Reserve Bank last week said it was monitoring wage and price-setting outcomes after consumer price inflation fell short of its expectations, prompting governor Graeme Wheeler to adopt a bias towards lowering interest rates.
The New Zealand dollar dropped to 74.91 US cents after today’s data, from 75.54 cents immediately before as traders speculated weak wage pressures would add to the case for an interest rate cut. The trade-weighted index declined to 77.51 from 78.02.
