NZ dollar falls after short-lived bounce on strong jobs data

The kiwi was trading at 65.29 US cents at 5pm.

The New Zealand dollar weakened after a short-lived bounce on stronger-than-expected employment numbers. Economists don't expect the data will prevent the Reserve Bank from cutting its official cash rate tomorrow.

The kiwi was trading at 65.29 US cents at 5pm in Wellington, down from the day's high of 65.85 cents and from 65.36 cents at 8am. The trade-weighted index was at 72.54 points from 72.67.

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The currency drifted lower as the day wore on as the worsening trade dispute between China and the US continues to weigh on sentiment, says Sheldon Slabbert, a trader at CMC Markets.

Equities markets have recovered from their lows, but that reflects more on how far and fast they've fallen so some sort of a bounce was to be expected, Slabbert says.

The Chinese yuan has continued to trade above 7 to the US dollar, a key level that hadn't been reached in more than a decade and that has sent shivers through world markets since the beginning of this week.

Also today, President Donald Trump's administration officially designated China as a "currency manipulator," a move likely to deepen the growing animosity between the two nations.

While New Zealand's Reserve Bank is widely expected to cut its official cash rate from 1.5 per cent to a record low at 1.25 per cent, Slabbert says it probably shouldn't.

"It's not that dire out there. Cutting rates is sending the wrong message to people," he says. Rather than boosting optimism, it's more likely to make people think the economy is in trouble.

Certainly, data today suggested RBNZ is well and truly meeting the recently added second half of its mandate to keep employment at maximum sustainable levels.

The figures showed the jobless rate fell to 3.9 per cent in the June quarter. That was down from 4.2 per cent in the March quarter and well below economists' expectations of a lift to 4.3 per cent.

Imre Speizer, strategist at Westpac, says the strong jobs numbers justified the currency's bounce. But he said any strength in the New Zealand dollar will be short-lived if the US-China trade war persists.

"We retain our multi-month bearish outlook, targeting a break below 65 US cents over the next few months. NZ economic indicators suggest this soft patch in the NZ economy could persist for a few more months at least," he says.

The kiwi was trading at 96.33 Australian cents from 96.57, at 53.68 British pence from 53.80, at 58.26 euro cents from 58.37, at 69.63 yen from 69.39 and at 4.5972 yuan from 4.6058.

The New Zealand two-year swap rate nudged higher to a bid price of 1.1694 per cent from 1.1652 yesterday. The 10-year swap rate plumbed new record lows and fell to 1.4675 per cent from 1.4750.